Simplifying the ABC System: Approximately Relevant ABC Systems Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided: Expected Consumption Ratios Activity Driver Wafer A Wafer B
Simplifying the ABC System: Approximately Relevant ABC Systems Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided: Expected Consumption Ratios Wafer A Wafer B Driver 0.25 0.75 0.15 0.85 0.60 0.40 4. Engineering hours Development hours Test hours Number of batches Number of change orders Number of moves Number of dies 0.55 0.45 0.20 0.80 6. 0.45 Activity Inserting and sorting process activities: 1. Developing test programs $ 45,000 2. Making probe cards 60,000 3. Testing products 600,000 Setting up batches 140,000 5. Engineering design 96,000 Handling wafer lots 400,000 7. Inserting dies 1,100,000 Procurement process activities: 8. Purchasing materials 500,000 9. Unloading materials 63,000 Inspecting materials 84,000 11. Moving materials 100,000 Paying suppliers 37,000 Total activity cost $ 3,225,000 0.55 0.70 0.30 0.15 0.85 0.35 0.65 10. Number of purchase orders Number of receiving orders Inspection hours Distance moved Number of invoices 0.65 0.35 0.55 0.45 12. 0.30 0.70 $967,500 Unit-level (plantwide) cost assignment Activity cost assignment $2,257,500 $1,644,200 $1,580,800 Calculated using number of dies as the single unit-level driver. Calculated by multiplying the consumption ratio of each product by the cost of each activity. Required: Calculated using number of dies as the single unit-level driver. 6 Calculated by multiplying the consumption ratio of each product by the cost of each activity. Required: 1. Using the five most expensive activities, calculate the overhead cost assigned to each product. Assume that the costs of the other activities are assigned in proportion to the cost of the five activities. If required, round your answers to the nearest dollar. Budgeted Activity Cost Testing products $ Activity Handling wafer lots $ Inserting dies $ $ Purchasing materials Moving materials $ Total activity cost $ Approx. ABC Cost Wafer A Wafer B 2. Calculate the error relative to the fully specified ABC product cost. Round your calculation to three decimal places and the percentage answer to one decimal place. Relative error Wafer A % Wafer B % 3. What if activities 1, 2, 5, and 8 each had a cost of $701,000 and the remaining activities had a cost of $52,625 each? Calculate the cost assigned to Wafer A by a fully specified ABC system and then by an approximately relevant ABC approach. Cost by a fully specified ABC system Cost by an approximately relevant ABC approach Simplifying the ABC System: Approximately Relevant ABC Systems Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided: Expected Consumption Ratios Wafer A Wafer B Driver 0.25 0.75 0.15 0.85 0.60 0.40 4. Engineering hours Development hours Test hours Number of batches Number of change orders Number of moves Number of dies 0.55 0.45 0.20 0.80 6. 0.45 Activity Inserting and sorting process activities: 1. Developing test programs $ 45,000 2. Making probe cards 60,000 3. Testing products 600,000 Setting up batches 140,000 5. Engineering design 96,000 Handling wafer lots 400,000 7. Inserting dies 1,100,000 Procurement process activities: 8. Purchasing materials 500,000 9. Unloading materials 63,000 Inspecting materials 84,000 11. Moving materials 100,000 Paying suppliers 37,000 Total activity cost $ 3,225,000 0.55 0.70 0.30 0.15 0.85 0.35 0.65 10. Number of purchase orders Number of receiving orders Inspection hours Distance moved Number of invoices 0.65 0.35 0.55 0.45 12. 0.30 0.70 $967,500 Unit-level (plantwide) cost assignment Activity cost assignment $2,257,500 $1,644,200 $1,580,800 Calculated using number of dies as the single unit-level driver. Calculated by multiplying the consumption ratio of each product by the cost of each activity. Required: Calculated using number of dies as the single unit-level driver. 6 Calculated by multiplying the consumption ratio of each product by the cost of each activity. Required: 1. Using the five most expensive activities, calculate the overhead cost assigned to each product. Assume that the costs of the other activities are assigned in proportion to the cost of the five activities. If required, round your answers to the nearest dollar. Budgeted Activity Cost Testing products $ Activity Handling wafer lots $ Inserting dies $ $ Purchasing materials Moving materials $ Total activity cost $ Approx. ABC Cost Wafer A Wafer B 2. Calculate the error relative to the fully specified ABC product cost. Round your calculation to three decimal places and the percentage answer to one decimal place. Relative error Wafer A % Wafer B % 3. What if activities 1, 2, 5, and 8 each had a cost of $701,000 and the remaining activities had a cost of $52,625 each? Calculate the cost assigned to Wafer A by a fully specified ABC system and then by an approximately relevant ABC approach. Cost by a fully specified ABC system Cost by an approximately relevant ABC approach
