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Question #1 Perkins National Bank has collected the following information for four activities and two types of credit cards: Activity Driver Classic Gold Activity Rate

Question #1

Perkins National Bank has collected the following information for four activities and two types of credit cards:

Activity Driver Classic Gold Activity Rate ($)
Processing transactions Transactions processed 12,000 7,200 0.20
Preparing statements Number of statements 12,000 7,200 0.95
Answering questions Number of calls 24,000 36,000 4.00
Providing ATMs ATM transactions 48,000 14,400 1.50

There are 4,900 holders of Classic cards and 19,600 holders of the Gold cards.

Required:

Calculate the unit cost (rounded to the nearest cent) for Classic and Gold credit cards.

Unit cost for Classic $_____
Unit cost for Gold $_____

Question #2

Activity-Based Customer Costing

Sleepeze Company produces mattresses for 20 retail outlets. Of the 20 retail outlets, 19 are small, separately owned furniture stores and one is a retail chain. The retail chain buys 60% of the mattresses produced. The 19 smaller customers purchase mattresses in approximately equal quantities, where the orders are about the same size. Data concerning Sleepezes customer activity are as follows:

Large Retailer Smaller Retailers
Units purchased 108,000 72,000
Orders placed 36 3,600
Number of sales calls 18 882
Manufacturing costs $43,200,000 $28,800,000
Order filling costs allocated* $1,418,040 $945,360
Sales force costs allocated* $837,000 $558,000
*Currently allocated on sales volume (units sold).

Currently, customer-driven costs are assigned to customers based on units sold, a unit-level driver.

Required:

Assign costs to customers by using an ABC approach. Round your answers and all intermediate calculations to the nearest dollar.

Order filling rate $ per order
Selling call rate $ per sales call
Cost assignment ------------
Large retailer $
Smaller retailers $

Question #3

Activity-Based Supplier Costing

Clearsound uses Alpha Electronics and La Paz Company to buy two electronic components used in the manufacture of its cell phones: Component 125X and Component 30Y. Consider two activities: testing components and reordering components. After the two components are inserted, testing is done to ensure that the two components in the phones are working properly. Reordering occurs because one or both of the components have failed the test and it is necessary to replenish component inventories. Activity cost information and other data needed for supplier costing are as follows:

I. Activity Costs Caused by Suppliers (testing failures and reordering as a result)

Activity Costs
Testing components $1,200,000
Reordering components 300,000

II. Supplier Data

Alpha Electronics La Paz Company
125X 30Y 125X 30Y
Unit purchase price $10 $26 $12 $28
Units purchased 120,000 75,800 15,000 15,000
Failed tests 2,000 780 10 10
Number of reorders 60 40 0 0

Required:

Determine the cost of each supplier by using ABC. Round Test and Reorder rates to the nearest dollar, and final answers to the nearest cent.

Alpha Electronics La Paz Company
125X 30Y 125X 30Y
Unit cost: $ $ $ $

Question #4

Nonvalue-Added Costs

Lemmons Inc. has the following two activities: (1) Retesting reworked products, cost: $483,000. The retesting cost of the most efficient competitor is $225,000. (2) Welding subassemblies, cost: $810,000 (67,500 welding hours).

A benchmarking study reveals that the most efficient level for Lemmons would use 54,000 welding hours and entail a cost of $648,000.

Required:

Determine the nonvalue-added cost of each activity.

Retesting Welding
Nonvalue-added cost: $ $

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