Activity$-$Based Supplier Costing

Noguchi Company manufactures cooling systems. Noguchi produces all the parts necessary for its product except for one electronic component, which is purchased fre two local suppliers: Manzer Inc. and Buckner Company. Both suppliers are reliable and seldom deliver late; however, Manzer sells the component for $$89$ per unit, whi Buckner sells the same component for $$86.$ Noguchi purchases $80\%$ of its components from Buckner because of its lower price. The total annual demand is $4,000,000$ components.

To help assess the cost effect of the two components, the following data were collected for supplier$-$related activities and suppliers:

I. Activity Data

Activity Cost

$\backslash$table$[[$Inspecting components $($sampling only$),$$$585,000$Consumption Ratios; Activity Rates

Bienestar Company produces two types of get$-$well cards: scented and regular. Drivers for the four activities are as follows:

Scented Cards Regular Cards

$\backslash$table$[[$Inspection hours,$120,80],[$Setup hours,$80,10],[$Machine hours,$210,550],[$Number of moves,$225,55]]$

The following activity data has been collected:

Inspecting products

Setting up equipment

Machining

Moving materials

Required:

Calculate the consumption ratios for the four drivers. Round your answers to two decimal places.

Scented Cards

Inspection hours

Setup hours

Machine hours

Number of moves

$2.$ Which of the following statements indicate there is product diversity?

Which of the following statements indicate there is product diversity?

Significant variation in the consumption ratios from driver to driver.

Explain the significance of product diversity for decision$-$making if the company chooses to use machine hours to assign all overhead.

If machine hours are used as the only driver, $$ cards would receive $28\%$ of the overhead, and $$ cards would receive $72\%$ overhead. Yet, the: $$ cards consume well over $60\%$ of the non$-$machine related overhead. Thus, the Scented cards are undercosted the Regular cards ari $.$ This inaccuracy can adversely affect many decisions, including pricing, keep or drop, and cost$-$volume$-$profit.

$3.$ Calculate the activity rates that would be used to assign costs to each product. Round your answers to the nearest cent.

Rates:

$\backslash$table$[[$Inspecting products,$$,$per inspection hour$],[$Setting up equipment,$$,$per setup hour$],[$Machining$,$$$,$per machine hour$],[$Moving materials,$$,$per move$]]$

Suppose that the budget for inspection is $$59,000$ for the coming year and that the activity rate for inspecting products is $$25$ per inspection hour. How mi inspection are expected for the coming year? If required, round your answer to nearest whole number of hours.

inspection hours

Castle Dale Company uses activity$-$based costing $($ABC$).$ The controller identifled two activities and their budgeted costs:

Setting up equipment $$364,000$

Other overheard $$3,432,000$

Setting up equipment is based on setup hours, and other overhead is based on oven hours.

Castle Dale produces two products, Fudge and Cookies. Information on each product is as follows:

$\backslash$table$[[,$Fudge,Cookies$],[$Batches produced,$16,000,890,000],[$Setup hours,$5,600,1,400],[$Oven hours,$2,600,18,20]]$

Required:

Calculate the activity rate for $($a$)$ setting up equipment and $($b$)$ other overhead.

a$.$ Setting up equipment $,x$ per setup hour

b$.$ Other overhead $,$$ per oven hour

How much total overhead is assigned to Fudge using ABC $?$

What is the unit overhead assigned to Fudge using ABC $?$ Round to the nearest cent.

$x$ per unit

Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours. Round to the nearest cent.

X per oven hour

How much total overhead is assigned to Fudge using the plantwide overhead rate?