TDABC

Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities performed within the company's Manufacturing Engineering Department. The department has the following activities: creating bills of materials (BOMs), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tools. The resource costs (from the general ledger) and the times to perform one unit of each activity are provided below.

Resource Costs		Activities	Unit Time	Driver
Salaries	$500,000	Creating BOMs	0.5 hr.	No. of BOMs
Equipment	100,000	Designing tools	5.4 hrs.	No. of tool designs
Supplies	30,000	Improving processes	1.0 hr.	Process improvement hrs.
Total	$630,000	Training employees	2.0 hrs.	No. of training sessions
		Studying capabilities	1.0 hr.	Study hrs.

Total machine and labor hours (at practical capacity):

Machine hours	2,000
Engineering hours	18,000
Total hours	20,000

The activity, designing tools, uses the number of tools designed as the activity driver. Using a traditional approach, the cost of the designing tools activity was determined to be $179,000 (see Exercise 4.19) with an expected activity output of 1,000 for the coming year. During the first week of the year, two jobs (Job 150 and Job 151) had a demand for 10 and 20 new tools, respectively.

Required:

1. Calculate the capacity cost rate for the Manufacturing Engineering Department. Round your answer to the nearest cent. $. FILL IN THE BLANK per hour

2. Using the capacity cost rate, determine the activity rates for each activity. Round your answers to the nearest cent.

	Activity Rates
Creating BOMs	$fill in the blank	per BOM
Designing tools	$fill in the blank	per tool design
Improving processes	$fill in the blank	per process improvement hr.
Training employees	$fill in the blank	per training session
Studying capabilities	$fill in the blank	per study hour

3. Calculate the cost of designing tools that would be assigned to each job using the TDABC-derived activity rate and then repeat using the traditional ABC rate.

	Job 150	Job 151
TDABC	$fill in the blank 7	$fill in the blank 8
ABC	$fill in the blank 9	$fill in the blank 10

4. Now suppose that time for creating BOMs is 0.50 for a standard product but that creating a BOM for a custom product adds an additional 0.3 hour. Express the time equation for this added complexity. Round your answers to two decimal places. Place the amounts left to right, lowest to highest.

BOM time

=

fill in the blank 11

+

fill in the blank 12

Calculate the activity rate for the activity of creating a BOM for custom products. Round your answer to the nearest cent. $fill in the blank 13 per BOM