Question

The activity-based cost (ABC costing) defines 5 activity levels that we will identify with letters for the purposes of this exercise: U : level-unit (Unit-level) L: level -lote (Batch-level) P: level-product Product-level) C : level-customer ( Customer-level) S: entity support (Organization-sustaining) The company Todo Inc., which manufactures several products, performs the following activities. Classify each activity within one of the levels. Place the corresponding letter in the box. level Exercise Production line employees assemble the products. Employees of the Human Resources department train line employees. Three employees are responsible for the inventory of the parts used to manufacture the products. Several engineers design new products. A purchasing clerk makes new orders for materials to manufacture the ordered product. A warehouse clerk issues orders for materials for production. Two mechanical engineers perform periodic preventive maintenance on the equipment used for manufacturing. The Marketing department prepares the quarterly catalog of products for sale.

Answer 1

Classification each activity according to the levels: P S L Exercise Explanation Production line employees assemble the The Product level includes all the support needed in producing products a particular product, therefore, assembling the product comes under making of the product Employees of the Human Resources The organization sustaining level includes those activities to department train line employees sustain the operations of the business. Hence training inlcudes organzation level activity. Three employees are responsible for the Batch level actitvity includes a series of transactions in Inventory of parts used to manufacture the manufacture of products. Therefore, the direct labor cost can products be considred under this acitivity Several engineers design new products This exercise comes under product level as designing includes the acitvity under product level. A purchasing clerk makes new orders for The batch level also includes the purchasing orders. Therfore materials to manufacture the ordered product. these costs are lalso included in the batch level A warehouse clerk Issues orders for materials The warehouse costs are included in the product level. Hence for production. this excercise comes under product level. Two mechanical engineers perform periodic The unit level costs include when a product is manufactured. preventive maintenance on the equipment used The mainteance costs are considred under unit level costs. for manufacturmg The Market department prepares the quarterly The organization sustaining level includes those activities to catalog of products sustain the operations of the business. Hence fixing the quartetly catologs inlcudes organzation level activity U S

Calculate the margin/profitability of customer Z: Particulars Generic model Model with specifications 104 $ 18,150 $ 10,120 $ 5.080S 2,536 Numer of Saunas Sale Price (Generic Model: 10x51815) Model with specifications: 4x$2530) Less: Total cost Material Cost (Generic Model: 10x508) (Model with specifications: 4x634) Direct Labor (10x521/hr x3hrs) (4x521/hr x35hrs) Order Processing Cost (5211x 2 orders) (S211x 1 order) Design cost (No of design Design cost) 435287) Total cost Profit $ 6,510 $ 2,940 $ 422 $ 211 $ 12,0125 $ 6,138 $ 1.148 6.835 3.285 Profitabilty of Z-($6138+53285) S