Consider one of L.A. Darling's manufacturing facilities. Suppose this facility assembles parts for displays to be sold to Wal-Mart, Kmart, and Walgreens. There are three departments--assembly, power, and maintenance. The assembly department uses an ABC system. The general cost of occupancy is allocated to the maintenance department and the assembly department based on the space occupied. Power department costs are allocated based on megawatt hours used. The assembly process produces three different types of displays with diverse demands on various activities and resources. Display type X consists of simple parts that are produced in high volume. Display type Y has parts that are of medium volume and complexity. Display type Z consists of complex parts that are produced in small lots. Management implemented ABC in this facility using the three-step procedure outlined on pages 495-497. The first steps have been completed, and the results are depicted in the process map shown in Exhibit 12-21. 1. Refer to Exhibit 12-1 on page 482. For each type of cost assignment listed in Exhibit 12-1, give an example from L.A. Darling. If no example exists, note as such. 2. What allocation method for service department costs does this facility use? Explain. 3. Calculate the allocations of service department and general costs to the assembly department activities. 4. Calculate the activity-based cost of each display type.

Exhibit 12-21 L.A. Darling Allocation of Power Department General Costs Service Department Costs in an ABC System Power Occupancy $600/MWH (Plant) Maintenance Department $600,000 MWH Square Feet 0 Department Resources Direct Power Occupancy $90,000 10 MWH 10,000 Sq. Ft. Machine Hours Assembly Machines Supervisors M SUP M SUP MO Setup Activity Assembly Activity 10 MWH; 2,000 Machine Hours; 20,000 Sq. Ft. 80 MWH; 4,000 Machine Hours; 70,000 Sq. Ft. Total Total Assigned Total Flow Cost per Assigned Total Flow Cost per Cost of Cost Driver Driver Unit Cost of Cost Driver Driver Unit $262,0001 200 Setups $1,310 $812,0001 4,000 Machine $203 per per Setup Hours Machine Hour Setups Machine Hours SA AA Parts Direct Parts Direct Parts Direct $1,053,800 Labor $575,000 Labor $239,700 Labor $344,000 $303,000 $123,000 AA SA AA SA AA Display Type A Display Type B Display Type C 100,000 Displays 50,000 Displays 15,000 Displays 20 Setups 60 Setups 120 Setups 1,000 Machine Hours 1,800 Machine Hours 1,200 Machine Hours 'Both the $262,000 and $812,000 total assigned cost amounts include allocations from all five indicated resources. Assembly Department