Question 4
The Hothi Clean Energy Power Plant (the Power Plant) manufactures 2 types of energy: Solar and Bioenergy.
To better capture costs of Manufacturing, the Power Plant has started implementing an Activity Based Costing system for manufacturing its energy. To start this process, the Power Plants controller has identified the following data regarding the cost pools and cost drivers.
Type of Engery	Number of material	Number of	Number of orders
(Products)	requisitions	Product Insepctions	Shipped
Solar	460	170	167
Bioenergy	620	240	129
Total costs in pool	$ 594,000	$ 82,000	$ 185,000
a) Using the Activity Based Costing method, prepare a schedule that shows the allocation of the costs from each cost pool for each type of energy (product).
Activity Cost Pool	Activity Rate	Solar	Bioenergy	Total
Material requisitions	\
Product inspections
Orders shipped
Total
b) Explain to the controller one way in which Activity Based Costing improves the accuracy of costing for products.
c) Explain to the controller one way in which Activity Based Costing is limited.