Resource and Activity-Based CostDriversâEyeGuard Equipment Inc. (EEI) manufacturesprotective eyewear for use in commercial and home applications. Theproduct is also used by hunters, home woodworking hobbyists, and inother applications. The firm has two main product linesâthehighest-quality product is called Safe-T, and a low-cost, valueversion is called Safe-V. Information on the factory conversioncosts for EEI is as follows:
FactoryCosts Salaries $ â 850,000 Supplies 150,000 Factory expense â 550,000 $1,550,000
EEI uses ABC costing to determine the unit costs of itsproducts. The firm uses resource consumption cost drivers based onrough estimates of the amount that each activity consumes, as shownbelow. EEI has four activities: job setup, assembly, inspecting andfinishing, and packaging.
Setup Assembly Inspecting & Finishing Packaging Total Salaries 15% 55% 20% 10% 100% Supplies 20 60â 20â 100 Factory expense 80â 20â 100
The activity cost drivers for the two products are summarizedbelow.
Activities ActivityDriver Setup Batch Assembly Units Inspect and finishing Hours Packaging Hours
Safe-V Safe-T Batches 250 600 Units 60,000 72,000 Finishing hours, per unit 0.2 0.3 Packaging hours, per unit 0.1 0.15 Materials per unit $ 3.50 $ 6.00
Required
Determine the amount of the cost pool for each of the fouractivities.
Determine the activity-based rates for assigning factory coststo the two products.
Determine the activity-based unit cost for each of theproducts.
What is the strategic role of the information obtained inrequirement 3?
The quantities of resource consumption cost drivers used werebased on rough estimates. Under what conditions would you recommendthat more accurate cost driver data be collected?
Resource and Activity-Based CostDriversâEyeGuard Equipment Inc. (EEI) manufacturesprotective eyewear for use in commercial and home applications. Theproduct is also used by hunters, home woodworking hobbyists, and inother applications. The firm has two main product linesâthehighest-quality product is called Safe-T, and a low-cost, valueversion is called Safe-V. Information on the factory conversioncosts for EEI is as follows:
| FactoryCosts | |
|---|---|
| Salaries | $ â 850,000 |
| Supplies | 150,000 |
| Factory expense | â 550,000 |
| $1,550,000 |
EEI uses ABC costing to determine the unit costs of itsproducts. The firm uses resource consumption cost drivers based onrough estimates of the amount that each activity consumes, as shownbelow. EEI has four activities: job setup, assembly, inspecting andfinishing, and packaging.
| Setup | Assembly | Inspecting & Finishing | Packaging | Total | |
|---|---|---|---|---|---|
| Salaries | 15% | 55% | 20% | 10% | 100% |
| Supplies | 20 | 60â | 20â | 100 | |
| Factory expense | 80â | 20â | 100 |
The activity cost drivers for the two products are summarizedbelow.
| Activities | ActivityDriver |
|---|---|
| Setup | Batch |
| Assembly | Units |
| Inspect and finishing | Hours |
| Packaging | Hours |
| Safe-V | Safe-T | |
|---|---|---|
| Batches | 250 | 600 |
| Units | 60,000 | 72,000 |
| Finishing hours, per unit | 0.2 | 0.3 |
| Packaging hours, per unit | 0.1 | 0.15 |
| Materials per unit | $ 3.50 | $ 6.00 |
Required
Determine the amount of the cost pool for each of the fouractivities.
Determine the activity-based rates for assigning factory coststo the two products.
Determine the activity-based unit cost for each of theproducts.
What is the strategic role of the information obtained inrequirement 3?
The quantities of resource consumption cost drivers used werebased on rough estimates. Under what conditions would you recommendthat more accurate cost driver data be collected?
