Creathon Company\'s plant in Columbus, Ohio, manufactures twoproducts: BR12 and

Question

Creathon Company's plant in Columbus, Ohio, manufactures twoproducts: BR12 and BR15. Product BR15 has more complexdesign and requires more setup time than BR12. Setups forBR12 require 2 hours on average; setups for BR15 require 3hours. Creathon's setup department employs 10 workers whoseaverage wage is $10 per hour; fringe benefits cost 38% ofwages. Other costs for setup activities amount to $25 persetup. Creathon plans to use all 10 workers for 40 hours eachfor the first 3 weeks of the winter quarter. The number ofsetups for these 3 weeks follow:
                                       Number of Setups
Week                            BR12 BR15
1        85       75
2        90       70
3        80       80

a. Determine the actual setup activity cost driver rate foreach week based on (1) the number of setups and (2) the number ofsetup hours.
b. Is either of the two activity cost driver rates or someother rate appropriate in this case? Why?                         

Explanation / Answer

Week

Total Cost

Number of Setups

Cost driverrate

1

$9,520

160

$59.50

2

$9,520

160

$59.50

3

$9,520

160

$59.50

Week

Total Cost

Number of Setup hours

Cost driverrate

1

$9,520

(2 x 85 ) + (3 x 75) = 395

$24.10

2

$9,520

(2 x 90 ) + (3 x 70) = 390

$24.41

3

$9,520

(2 x 80 ) + (3 x 80) = 400

$23.80

Week

Total Cost

Number of Setups

Cost driverrate

1

$9,520

160

$59.50

2

$9,520

160

$59.50

3

$9,520

160

$59.50

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