Bob Randall, cost accounting manager for Hemple Products, was asked to determine

Question

Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities performed within the company's Manufacturing Engineering Department. The department has the following activities: creating bills of materials (BOMs), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tools. The resource costs (from the general ledger) and the times to perform one unit of each activity are provided below.

Total machine and labor hours (at practical capacity):

The activity, designing tools, uses the number of tools designed as the activity driver. Using a traditional approach, the cost of the designing tools activity was determined to be $186,000 with an expected activity output of 1,000 for the coming year. During the first week of the year, two jobs (Job 150 and Job 151) had a demand for 10 and 20 new tools, respectively.

Required:

1. Calculate the capacity cost rate for the Manufacturing Engineering Department. Round your answer to the nearest cent.
$ per hour

2. Using the capacity cost rate, determine the activity rates for each activity. Round your answers to the nearest cent.

3. Calculate the cost of designing tools that would be assigned to each job using the TDABC-derived activity rate and then repeat using the traditional ABC rate.

4. Now suppose that time for creating BOMs is 0.7 for a standard product but that creating a BOM for a custom product adds an additional 0.5 hour. Express the time equation for this added complexity. Round your answers to two decimal places. Place the amounts left to right, lowest to highest.

Calculate the activity rate for the activity of creating a BOM for custom products. Round your answer to the nearest cent.
$ per BOM

Resource Costs        Activities Unit Time        Driver Salaries $347,000        Creating BOMs 0.7 hr.        No. of BOMs Equipment 98,000        Designing tools 2.1 hrs.        No. of tool designs Supplies 35,000        Improving processes 1.1 hrs.        Process improvement hrs. Total $480,000        Training employees 1.9 hrs.        No. of training sessions        Studying capabilities 1.9 hrs.        Study hours

Explanation / Answer

1. Capacity cost rate for the Manufacturing Engineering Department

1. Capacity cost rate for the Manufacturing Engineering Department

Total costs 480000 Total time in hrs. 20000 Capacity cost rate(480000/20000) 24 Particulars Unit Time Activity Rates Creating BOMs 0.7 24*0.7 16.8 per BOM Designing tools 2.1 24*2.1 50.4 per tool design Improving processes 1.1 24*1.1 26.4 per process improvement hr. Training employees 1.9 24*1.9 45.6 per training session Studying capabilities 1.9 24*1.9 45.6 per study hour 3. Cost of designing tools using the TDABC-derived activity rate and traditional ABC rate Job 150 Job 151 TDABC 50.4*10= 504 50.4*20 1008 ABC at the activity rate of 186000/1000=186 186*10= 1860 186*20 3720 4.   BOM time = (0.7+0.5)*No.of BOMs= 1.2* BOM Activity rate for the activity of creating a BOM for custom products. 24*1.2= 28.8 $ per BOM

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