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 49,000 Engineering hours 0.25 0.75 2. 60,000 0.10 0.90 3. 600,000 0.60 0.40 135,000 Development hours Test hours Number of batches Number of change orders Number of moves 0.55 Inserting and sorting process activities: 1. Developing test programs $ Making probe cards Testing products 4. Setting up batches Engineering design 6. Handling wafer lots Inserting dies Procurement process activities: Purchasing materials 0.45 5. 93,000 0.15 0.85 500,000 0.45 0.55 7. 700,000 Number of dies 0.75 0.25 8. 400,000 0.15 0.85 9. Unloading materials 61,000 Number of purchase orders Number of receiving orders Inspection hours 0.30 0.70 10. 76,000 0.70 0.30 11. Inspecting materials Moving materials Paying suppliers 200,000 0.55 0.45 Distance moved Number of invoices 12. 35,000 0.35 0.65 Total activity cost $ 2,909,000 $2,181,750 $727,250 Unit-level (plantwide) cost assignmenta Activity cost assignment $1,470,200 $1,438,800 a 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: 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. Activity Budgeted Activity Cost Testing products 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 $602,000 and the remaining activities had a cost of $62,625 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