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Adirondack Corporation is estimating activity costs associated with producing two different sized e-reader tablets. The indirect labor can be traced to three separate activity pools. The budgeted activity cost and activity base information, along with the estimated activity-base information, is provided below. All work must be shown for credit
Activity
Cost
Activity Base
Purchasing
$ 300,000
Number of purchase orders
Materials handling
500,000
Number of moves
Production
1,500,000
Machine hours
TOTAL $2,300,000
Number of
Purchase
Orders
Number
of
Moves
Machine
Hours
Units
7" tablet
4,000
1,200
2,000
10' tablet
800
8,000
3,000
TOTALS
10,000
5,000
A) Determine the Activity rate for each activity cost pool.
Answers:
B) Complete the following chart to determine the total indirect labor allocated to each UNIT under the ABC model.
A
B
C
D
E
F
G
1
7 inch tablet
10 inch tablet
2
Activity-Base
Usage ×
Rate
= Cost
Activity-
Base
3
4
5
6
7
8
Activity cost per tablet
C) If traditional costing had been used and number of units were the allocation base, what would the single allocation rate be?
D) Given your answers in parts (B) and (C), which method would you suggest to management, ABC or a single allocation rate? Please explain your decision
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