Question

Hel Athens Company is conducting a time-driven activity-based costing study In its Engineering Department. To ald the study, the company provided the following data regarding its Engineering Department and the customers served by the department: Number of employees Average salary per employee Weeka of employment per year Hours worked per week Practical capacity pereentage $62,000 52 40 New Product Design 40 Engineering Change Orders Product Testing Hours per unit of the activity 20 CustomerA Number of new producta designed Number of engineering change ordera Number of products tested CustomerB 3. Customer C 5. All Custoners 130 200 10 6. 110 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.

Answer 1

Answer-1(a):

1,664 Practical capacity per employee (in hours), (a) [52*40*80%] Number of employees (b) Practical capacity of resources supplied in hours) (a) (b) 13,312 Cost per hour of the resources supplied ($496,000 / 13,312) 37.26

Answer-1(b):

Product testing New Engineering product design change orders 40 37.26 37.26 1490 745 Hours per unit of the activity (a) Cost per hour of the resources supplied (b) Time driven activity rate (a) (b) 20 37.26 298

Answer-1(c):

Customer A Customer B Number of engineering change orders (a) Time driven activity rate (b) Total engineering cost consumed Customer C 21 745 1490 745 745 1490 3725

Answer-2(a):

Total Customer demand for each activity (a) Customer service hours required for each unit of activity (b) Customer service hours used to meet demand (a) (b) New Engineering product design change orders 130 200 40 20 5,200 4,000 Product testing 110 8 880 10,080

Answer-2(b):

Total Customer service hours available to meet demand (a) Total Customer service hours used to meet demand (b) Unused capacity in hours (a) - (b) 13,312 10,080 3,232

Answer-2(c):

Unused capacity in hours (a) Practical capacity per employee (in hours), (b) Unused capacity in number of employees (a) / (b) 3232 1664 1.94