Question
The following budgeted information is available for Zeta Company: Activity Budgeted Cost Activity Driver Consumption of Drivers for Zetas Product Lines Total Activity Driver Product
The following budgeted information is available for Zeta Company:
Activity | Budgeted Cost | Activity Driver |
| Consumption of Drivers for Zetas Product Lines | |
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| Total Activity Driver | Product A | Product B |
Processing & Testing |
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Developing test programs | $400,000 | Engineering hours | 10,000 | 2,500 | 7,500 |
Making probe cards | 58,750 | Development hours | 4,000 | 400 | 3,600 |
Testing products | 300,000 | Test hours | 20,000 | 2,000 | 18,000 |
Setups | 40,000 | Number of batches | 100 | 55 | 45 |
Engineering design | 80,000 | Number of change orders | 60 | 9 | 51 |
Handling lots | 90,000 | Number of moves | 200 | 110 | 90 |
Subtotal, Processing & Testing | $968,750 |
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Procurement |
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Purchasing materials | 450,000 | Number of purchase orders | 2,500 | 500 | 2,000 |
Unloading materials | 60,000 | Number of deliveries | 3,000 | 600 | 2,400 |
Inspecting materials | 75,000 | Inspection hours | 5,000 | 3,500 | 1,500 |
Moving materials | 30,000 | Distance moved (feet) | 3,000 | 2,100 | 900 |
Paying suppliers | 66,250 | Number of invoices | 1,250 | 250 | 1,000 |
Subtotal, Procurement | 681,250 |
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Total | $1,650,000 |
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1. Assume the company currently uses departmental rates for allocating overhead. Calculate the pre-determined overhead rate for the Processing & Testing Department (based on Engineering hours) and the Procurement Department (based on Number of purchase orders). Round to three (3) places after the decimal.
2. Identify which activity cost pools can be combined.
3. After combining cost pools as appropriate, calculate the pre-determined overhead rates for each activity cost pool.
4. Calculate the cost of Product line A using the departmental rates calculated in #1.
5. Calculate the cost of Product line A using the ABC rates calculated in #3.
6. Is ABC better for Zeta Company? Why or why not?
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