Adirondack Corporation is estimating activity costs associated with producing two different sized e-reader tablets. The indirect labor can be traced to three separate activity pools. The budgeted activity cost and activity base information, along with the estimated activity-base information, is provided below. All work must be shown for credit
|
Activity
Cost
|
Activity Base
|
|
|
Purchasing
|
$ 300,000
|
Number of purchase orders
|
|
|
Materials handling
|
500,000
|
Number of moves
|
|
|
Production
|
1,500,000
|
Machine hours
|
|
|
TOTAL $2,300,000
|
|
Number of
Purchase
Orders
|
Number
of
Moves
|
Machine
Hours
|
Number
of
Units
|
|
|
7" tablet
|
4,000
|
1,200
|
2,000
|
2,000
|
|
|
10' tablet
|
4,000
|
800
|
8,000
|
3,000
|
|
|
TOTALS
|
8,000
|
2,000
|
10,000
|
5,000
|
|
|
|
|
|
|
|
|
|
|
A) Determine the Activity rate for each activity cost pool.
Answers:
Purchasing
Materials handling
Production
B) Complete the following chart to determine the total indirect labor allocated to each UNIT under the ABC model.
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
|
1
|
|
7 inch tablet
|
10 inch tablet
|
|
2
|
Activity
|
Activity-Base
Usage ×
|
Activity
Rate
|
Activity
= Cost
|
Activity-
Base
Usage ×
|
Activity
Rate
|
Activity
= Cost
|
|
3
|
Purchasing
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
8
|
Activity cost per tablet
|
|
|
|
|
C) If traditional costing had been used and number of units were the allocation base, what would the single allocation rate be?
D) Given your answers in parts (B) and (C), which method would you suggest to management, ABC or a single allocation rate? Please explain your decision