Simplifying the ABC System: Approximately Relevant ABC Systems Patterson Company produces wafers for integrated circuits

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Simplifying The Abc System Approximately Relevant Abc Systems Patterson Company Produces Wafers For Integrated Circuits 1 (183.53 KiB) Viewed 24 times

Simplifying the ABC System: Approximately Relevant ABC Systems Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided: Activity Inserting and sorting process activities: 1. Developing test programs $ Making probe cards Testing products Setting up batches Engineering design Handling wafer lots Inserting dies Procurement process activities: 2. 3. 4. 5. 6. 7. 8. Purchasing materials Unloading materials Inspecting materials Moving materials 12. Paying suppliers Total activity cost 9. 10. 11. 50,000 60,000 600,000 135,000 90,000 300,000 700,000 400,000 60,000 75,000 500,000 30,000 $ 3,000,000 Driver Engineering hours Development hours Test hours Number of batches Number of change orders Number of moves Number of dies Number of purchase orders Number of receiving orders Inspection hours Distance moved Number of invoices $2,100,000 $1,500,000 Expected Consumption Ratios $900,000 $1,500,000 Wafer A 0.25 0.10 0.60 Unit-level (plantwide) cost assignmenta Activity cost assignment *Calculated using number of dies as the single unit-level driver. bCalculated by multiplying the consumption ratio of each product by the cost of each activity. 0.55 0.15 0.45 0.70 0.20 0.35 0.65 0.50 0.30 Wafer B 0.75 0.90 0.40 0.45 0.85 0.55 0.30 0.80 0.65 0.35 0.50 0.70

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. Activity Budgeted Activity Cost Testing products Handling wafer lots Inserting dies Purchasing materials Moving materials Total activity cost Wafer A Wafer B $ Wafer A Wafer B $ $ $ Approx. ABC Cost 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 % % 3. What if activities 1, 2, 5, and 8 each had a cost of $650,000 and the remaining activities had a cost of $50,000 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