Question

Approximately Relevant ABC

Silven Company has identified the following overhead activities, costs, and activity drivers for the coming year:

Activity	Expected Cost		Activity Driver	Activity Capacity
Setting up equipment	$135,000		Number of setups		120
Ordering materials	10,800		Number of orders		600
Machining	119,000		Machine hours		11,900
Receiving	19,200		Receiving hours		960

Silven produces two models of cell phones with the following expected activity demands:

		Model X		Model Y
Units completed		4,300		8,600
Number of setups		80		40
Number of orders		200		400
Machine hours		6,800		5,100
Receiving hours		320		640

Required:

1. Determine the total overhead assigned to each product using the four activity drivers.

	Total Overhead Assigned
Model X	$
Model Y	$

2. Determine the total overhead assigned to each model using the two most expensive activities. The costs of the two relatively inexpensive activities are allocated to the two expensive activities in proportion to their costs. Round interim calculations to two decimal places and round your final answers to the nearest dollar.

	Total Overhead Assigned
Model X	$
Model Y	$

3. Using ABC as the benchmark, calculate the percentage error. Round your answers to two decimal places.

	Percentage Error
Model X	%
Model Y	%

Answer 1

1]	Calculation of activity rates:
	Activity	Expected Cost	Activity Driver	Activity Capacity	Activity Rate
	Setting up equipment	$    1,35,000	Number of setups	120	$    1,125.00
	Ordering materials	$        10,800	Number of orders	600	$          18.00
	Machining	$    1,19,000	Machine hours	11,900	$          10.00
	Receiving	$        19,200	Receiving hours	960	$          20.00
	Assignment of overhead:
		Model X		Model Y
	Activity	Activity demand	OH assigned	Activit demand	OH assigned
	Setting up equipment	80	$          90,000	40	$        45,000
	Ordering materials	200	$            3,600	400	$          7,200
	Machining	6800	$          68,000	5,100	$        51,000
	Receiving	320	$            6,400	640	$        12,800
	Total overhead assigned		$      1,68,000		$    1,16,000
2]	Assignment of cost of less expensive activities to most expensive activities:
		Setting up equipment	Machining	Total
	Ordering materials	$          5,740	$            5,060	$         10,800
		[10800*135000/(135000+119000)]	[10800*119000/(135000+119000)]
	Receiving	$        10,205	$            8,995	$         19,200
		[19200*135000/(135000+119000)]	[19200*119000/(135000+119000)]
	Total overhead reallocated	$        15,945	$          14,055
	Direct overhead	$    1,35,000	$      1,19,000
	Total overhead	$    1,50,945	$      1,33,055
	Activity capacity	120	11900
	Activity rate	$    1,257.87	$            11.18
		Model X		Model Y
	Activity	Activity demand	OH assigned	Activit demand	OH assigned
	Setting up equipment	80	$      1,00,630	40	$        50,315
	Machining	6800	$          76,024	5,100	$        57,018
	Total overhead assigned		$      1,76,654		$    1,07,333
3]		Percentage Error
	Model X	5.15%
	Model Y	-7.47%