Simplifying the ABC System Equally Accurate Reduced ABC Syst

Simplifying the ABC System: Equally Accurate Reduced ABC Systems Selected activities and other information are provided for Patterson Company for its most recent year of operations Expected Consumption Ratios Activity 7. Inserting dies 8. Purchasing materials 1. Developing test programs 3. Testing products Driver Number of dies Number of purchase Quantity 2,000,000 2,500 10,000 20,000 Wafer A Wafer B 0.70 0.30 0.20 0.25 0.60 $1,500,000 0.80 orders Engineering hours Test hours 0.75 0.40 $1,500,000 $3,000,000 ABC assignments Total overhead cost Required: 1. Form reduced system cost pools for activities 7 and 8. Round any division to 9 decimal places in your computations. Round your final answers to the nearest dollar Inserting dies cost pool Purchasing cost pool

Solution

Answer

inserting dies cost pool = 0.7 - 0.3 = 0.4

= 300000 * 6/10

= 180000

purchase cost pool = 0.2 - 0.8 = 0.6

= 300000 * 4/10

= 120000

2 )

wafer A = 126000 ( 180000 * 0.7 )

= 24000 ( 120000 * 0.2 )

= 150000

wafer B = 54000 ( 180000 * 0.3 )

= 96000

= 150000

3 )development test program = 0.25 - 0.75 = 0.5

testing production = 0.6 - 0..4 = 0.2

developing test program cost pool = 300000 * 2/7

= 85714.28

testing production cost pool = 300000 * 5/7

= 214285.71