Need Question 4 and 5. (For question 5 it says refer to question 2: this is question 2 calculate the 5 activity rates under ABC costing and this is the answer

Equipment Setups/Number of Setups = $10,000,000/40,000 = $250 per setup

Purchase orders/Number of Purchase Orders = $9,000,000/120,000 = $75 per setup

Machining/Number of Machine Hours = $75,000,000/1,500,000 = $50 per setup

Testing/Number of Testing Hours = $8,400,000/700,000 = $12 per setup

Packaging/Number of Containers = $12,000,000/1,500,000 = $8 per setup)

The Jensen Company is a publicly traded corporation that produces different types of digital control systems. My name is Alan Smith and I have worked for this company for the last ten years in the controller's office. I was both an accounting and finance major in university. The company currently produces 300 products and does not anticipate any new products coming out over the next three years I have previously mentioned to my superiors that it is not appropriate for our firm to use a traditional accounting system (where overhead costs are allocated across products at a rate of 400% of direct labor costs) when different products require different amounts of indirect overhead resources. For example, under the traditional system all costs associated with testing of products for quality assurance purposes are part of overhead costs and therefore allocated across products based on direct labor costs. Yet, some of our products require as much as 5 hours of testing whereas some products require less than 1 minute of testing with no connection to direct labor costs. Given that traditional costing systems result in significant cost distortions when determining products costs and given that the firm now has revenues of over $600,000,000 a year, Jensen has decided to adopt activity based costing over the next year or two. Jensen's management has hired Deloitte Consulting to help us implement activity based costing. I will be acting as the liaison between our firm and Deloitte. As part of the initial implementation phase, I have asked Deloitte to derive the costs and product margins associated with two of our products, alpha and beta, so that these costs and product margins could be compared with the costs and product margins under our current traditional accounting system. I picked these products since Jensen management believe they have very different demands on indirect overhead resources. Further, alpha is sold in large quantities whereas beta is sold in small quantities and traditional accounting systems can cause large cost distortions in different directions for products sold in large and small quantities Current information from our existing system on a per unit basis is shown in Exhibit 1 Exhibit 1 beta $8 1.5 $10 $90 alpha $9 Direct material Direct labor hours Direct labor wage rate per hour Sales price per unit $10 $80 My staff has identified for Deloitte five activity cost pools. Information on those cost pools and the related activity measures are provided in Exhibit 2. Exhibit 2 Level of Allocation Base number of setups number of purchase orders number of machine hours number of testing hours number of containers Allocation Base 40,000 120,000 1,500,000 700,000 1,500,000 Total Costs Equipment setups Purchase orders Machining Testing Packaging $10,000,000 $9,000,000 $75,000,000 $8,400,000 $12,000,000