uSing me ActiVity Hierarchy to GlaSSilyActiVities Dynamic Products, Inc., manufa
ID: 2662246 • Letter: U
Question
uSing me ActiVity Hierarchy to GlaSSilyActiVities
Dynamic Products, Inc., manufactures a wide variety of productsin its plant in Macon, Georgia.
Management has identified the following manufacturing andadministrative activities:
1. Special equipment is used to add a protective finish tovarious products.
2. Purchase orders are issued to acquire raw materials.
3. Factory managers run training programs in quality control fornew employees.
4. Machine setups are necessary for each batch of goodsproduced.
5. Janitors clean the offices and the plant floor eachevening.
6. Warehouse personnel pull the stock needed for production andmove the materials to
the plant floor.
7. Receiving clerks inspect incoming materials and preparereceiving reports.
8. Quality control inspectors test each batch of goods before itis stored or shipped.
9. Payroll clerks process the factory workers' time cards andprepare weekly paychecks for distribution.
10. Engineers develop new-product specifications and redesignexisting products as needed.
Required
A. Classify each of the activities listed as a unit-level,batch-level, product-level, or facility level activity.
B. Identify a cost driver for each of the activities that couldbe used to apply costs to Dynamic’s products.
C. For each activity, identify one or more traceable costs.
D. Explain how the hierarchy provides insights that affectdecision making.
Explanation / Answer
Management has identified the following manufacturing andadministrative activities: Facility level activity3. Factorymanagers run training programs in quality control for newemployees-Cost Driver: Trg Cost per employee 5. Janitors clean the offices and the plant floor each evening -Fixed OH 7. Receiving clerks inspect incoming materials and preparereceiving reports - Variable OH: No of Hrs worked for each Unit 9. Payroll clerks process the factory workers' time cards andprepare weekly paychecks for distribution-Fixed OH product-level1. Special equipment isused to add a protective finish to various products - Var OH perproduct basis 10. Engineers develop new-product specifications and redesignexisting products as needed - Fixed OH R&D batch-level4. Machine setups arenecessary for each batch of goods produced - Var OH :No of MachineHrs per batch 8. Quality control inspectors test each batch of goods before it isstored or shipped-Var OH- No of Batches Inspected unit-level2. Purchase orders are issuedto acquire raw materials - VarOH - No of Purc orders for Units. 6. Warehouse personnel pull the stock needed for production andmove the materials to the plant floor - No of Personnel reqd perunit. A,B,C - Answers are indicated above. D. We can see that Factory OH are unavoidable & will beincurred independednt of level of production. Some of otherexpenses are Ficed while others are variabale. We need to MinimizeFixed OH and optimize Var OH by improving proxess
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