Shriver Company makes two types of circuit boards. One is a high-caliber board d
ID: 2417361 • Letter: S
Question
Shriver Company makes two types of circuit boards. One is a high-caliber board designed to accomplish the most demanding tasks; the other is a low-caliber board designed to provide limited service at an affordable price. During its most recent accounting period, Shriver incurred $330,000 of inspection cost. Shriver recently established an activity-based costing system that classifies its activities into four categories. Categories and appropriate cost drivers follow. Required: Allocate the inspection cost between the two products assuming that it is driven by (a) unit-level activities, (b) batch-level activities, (c) product-level activities, or (d) facility-level activities Note that each allocation represents a separate alternative. In other words, the $330,000 of inspection cost will be allocated four times, once for each cost driver (Do not round intermediate calculations.)Explanation / Answer
Solution:
Given Insoection cost for high-caliber and low cliber boards = $ 350,000
ALLOCATION OF INSPECTION COST = $ 350,000
(a.) Unit-level activities
Allocation on the basis of Direct Labour
High Caliber Boards = ( 10,000 hours/ 35,000 hours ) * $ 350,000 = $ 100,000
Low Caliber Boards = ( 25,000 hours/ 35,000 hours ) * $ 350,000 = $ 250,000
(b.) Batch-level activities
Allocation on the basis of Number of Batches
High Caliber Boards = ( 35 batches/70 batches ) * $ 350,000 = $ 175,000
Low Caliber Boards = ( 35 batches/70 batches ) * $ 350,000 = $ 175,000
(c.) Product-level activities
Allocation on the basis of Number of Inspectors
High Caliber Boards = ( 4 inspectors / 7 inspectors ) * $ 350,000 = $ 200,000
Low Caliber Boards = ( 3 inspectors / 7 inspectors ) * $ 350,000 = $ 150,000
(d.) Facility-level activities
Allocation on the basis of Number of Square Feets
High Caliber Boards = ( 70,000 square feets/ 175,000 square feets ) * $ 350,000 = $ 140,000
Low Caliber Boards = ( 105,000 square feets/ 175,000 square feets ) * $ 350,000 = $ 210,000
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