Question

Athens Company is conducting a time-driven activity-based costing study in its Engineering Department. To aid the study, the company provided the following data regarding its Engineering Department and the customers served by the department: $76.000 Nunber of employees Average salary per employee Veeks of employment per year Hours worked per week Practical capacity percentage 40 85% New Product Design Engineering Change Orders 20 - Product Testing 3 Hours per unit of the activity Customer Customer B Customer C A11 Customers 165 Number of new products designed unber of engineering change orders Number of products tested 7 235 145 Required: 1. Using the customer cost analysis as demonstrated in Exhibit 7A-2 in your textbook, compute the following: a. The cost per hour of the resource supplied in the Engineering Department. b. The time-driven activity rate per hour for each of Athens' three activities. c. The total engineering costs consumed by Customer A Customer B. and Customer C. 2. Using the capacity analysis as demonstrated in Exhibit 7A-3 in your textbook, compute the following: a. The used capacity in hours. b. The unused capacity in hours. c. The unused capacity in number of employees. d. The impact on expenses of matching capacity with demand. 3. Assume that Athens is considering expanding its business such that the estimated number of new products designed would increase to 235, the number of engineering change orders would jump to 305, and the number of products tested would rise to 225 Using these revised figures, calculate the following: a. The used capacity in hours. b. The unused capacity in hours.

Answer 1

Athens Company 42.99 a.Cost per hour of the resource supplied b.Time driven activity rate: New Product Design Engineering Change Orders Product Testing C.Total Engineering labor costs assigned to: Customer A Customer B Customer C 1719.46 859.73 343.89 13583.71 7909.50 12036.20

Athens Company Requirement 1a. Number Employees (a) Average Salary per employee (b) Total cost of resources supplied (a) (b) Practical capacity per employee (in hours) (a) Number Employees (b) Practical capacity of resources supplied (in hours) (a) (b) Cost per hour of the resource supplied 76000 684000 1768 15912 42.99 Requirement 1b. New Product Engg. Change Design Orders Product Testing 20 Hours per unit of activity (a) Cost per hour of the resource supplied (b) Time driven activity rate (a) (b) 42.99 1719.46 42.99 859.73 42.99 343.89 Requirement 1c. Customer A Customer B Customer C Number of new products designed (a) Time driven activity (b) New product design costs assigned (a) (b) 1719.46 5158.37 1719.46 3438.91 1719.46 6877.83 Number of Engineering change orders (a) Time driven activity (b) Engineering change order cost assigned (a) (b) 7 859.73 6018.10 859.73 3438.91 859.73 3438.91 3 Number of products tested (a) Time Driven activity rate (b) Product testing cost assigned (a) (b) 343.89 2407.24 343.89 1031.67 343.89 1719.46 Total engineering labor costs assigned to customers 13583.71 7909.50 12036.20

Requirement 2a. To 2d. New Product Engg. Change Design Orders 165 235 40 20 6600 4700 Product Testing 145 Customer demand for each activity (a) Engineering hours required per unit of each activity (b) Engineering hours used to meet demand (a) (b) 1160 Total Engineering hours available to meet demand (a) Total Engineering hours used to meet demand (b) Unused Capacity in hour (a) - (b) 15912 12460 3452 Unused capacity in hours (a) Practical capacity per employee (in hours) (b) Unused capacity in number of employees (a)/(b) 3452 1768 1.95 Potential adjustment in number of employees (a) Average salary per employee (b) Impact on expenses of matching capacity with demand (a) (b) 76000 -152000 Requirement 2a. To 2d. Product Testing 225 Customer demand for each activity (a) Engineering hours required per unit of each activity (b) The used capacity in hours (a) (b) New Product Engg. Change Design Orders 235 305 40 20 9400 6100 1800 Total Engineering hours available to meet demand (a) Total Engineering hours used to meet demand (b) Unused Capacity in hour (a) (b) 15912 17300 -1388 - 1388 Unused Capacity in hour (a) Practical capacity per employee (in hours) (b) Unused capacity in number of employees (a) (b) 1768 -0.79 Potential adjustment in number of employees (a) Average salary per employee (b) Impact on expenses of matching capacity with demand (a) (b) 76000 76000