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Activity-Based Costing, Reducing the Number of Drivers and Equal Accuracy Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for

Activity-Based Costing, Reducing the Number of Drivers and Equal Accuracy

Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for the cylinders in the Cutting and Welding Department. Other parts and the subassembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below.

Process Activity Cost Activity Driver Expected Quantity
Cutting and Welding Welding $ 776,000 Welding hours 4,000
Machining 450,000 Machine hours 10,000
Inspecting 448,250 No. of inspections 1,000
Materials handling 300,000 No. of batches 12,000
Setups 240,000 No. of setups 100
$2,214,250
Assembly Changeover $ 180,000 Changeover hours 1,000
Rework 61,750 Rework orders 50
Testing 300,000 No. of tests 750
Materials handling 380,000 No. of parts 50,000
Engineering support 130,000 Engineering hours 2,000
$1,051,750

Other overhead activities, their costs, and drivers are listed below.

Activity Cost Activity Driver Quantity
Purchasing $ 135,000 Purchase requisitions 500
Receiving 274,000 Receiving orders 2,000
Paying suppliers 225,000 No. of invoices 1,000
Providing space and utilities 100,000 Machine hours 10,000
Total $ 734,000

Other production information concerning the two hydraulic cylinders is also provided:

Cylinder A Cylinder B
Units produced 1,500 3,000
Welding hours 1,600 2,400
Machine hours 3,000 7,000
Inspections 500 500
Moves 7,200 4,800
Batches 45 55
Changeover hours 540 460
Rework orders 5 45
No. of tests 500 250
Parts 40,000 10,000
Engineering hours 1,500 500
Requisitions 425 75
Receiving orders 1,800 200
Invoices 650 350

Required:

1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned to each product and the unit overhead cost. If required, round your unit overhead cost answers to the nearest cent.

Total Overhead Cost Unit Overhead Cost
Cylinder A $ $
Cylinder B $ $

2. Using activity rates, calculate the total overhead cost assigned to each product and the unit overhead cost. If required, round interim calculations to the nearest cent, and final answers to the nearest dollar.

Total Overhead Cost Unit Overhead Cost
Cylinder A $ $
Cylinder B $ $

3. Calculate the global consumption ratios. Round your answers to two decimal places.

Global Consumption Ratios
Cylinder A
Cylinder B

4. Calculate the consumption ratios for welding and materials handling (Assembly). Round your answers to two decimal places.

Cylinder A Cylinder B
Welding
Materials handling

5. Calculate the consumption ratios for inspection and engineering. Round your answers to two decimal places.

Cylinder A Cylinder B
Inspection
Engineering

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