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Homework answers / question archive / Calculator Simplifying the ABC System: Equally Accurate Reduced ABC Systems Selected activities and other information are provided for Patterson Company for its most recent year of operations

Calculator Simplifying the ABC System: Equally Accurate Reduced ABC Systems Selected activities and other information are provided for Patterson Company for its most recent year of operations

Accounting

Calculator Simplifying the ABC System: Equally Accurate Reduced ABC Systems Selected activities and other information are provided for Patterson Company for its most recent year of operations. Expected Consumption Ratios Activity Driver Quantity Wafer A Wafer B 7. Inserting dies Number of dies 1,500,000 0.7 0.3 Number of purchase 8. Purchasing materials 2,300 0.2 orders 0.8 1. Developing test programs Engineering hours 7,500 0.25 0.75 3. Testing products Test hours 16,500 0.6 0.4 ABC assignments $175,000 $175,000 Total overhead cost $350,000 Required: 1. Form reduced system cost pools for activities 7 and 8. Do not round interim calculations. Round your final answers to the nearest dollar. Inserting dies cost pool Purchasing cost pool ? ? 2. Assign the costs of the reduced system cost pools to Wafer A and Wafer B. Do not round interim calculations. Round your final answers to the nearest dollar. Wafer A ?
2. Assign the costs of the reduced system cost pools to Wafer A and Wafer B. Do not round interim calculations. Round your final answers to the nearest dollar Wafer A ? Wafer B ? 3. What if the two activities were 1 and 37 Repeat Requirements 1 and 2. Form reduced system cost pools for activities 1 and 3. Do not round Interim calculations. Round your final answers to the nearest dollar. Developing test programs cost pool 100,000 Testing products cost pool ? Assign the costs of the reduced system cost pools to Wafer A and Wafer B. Wafer A ? Wafer B ? Feedback Check My Work 1. A key step in the reduction process is expressing each global consumption ratio as a weighted combination of the consumption ratios for each product.

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Part 1

Global ratios:

Wafer A =(175,000/350,000)= 0.5

Wafer B =(175,000/350,000)= 0.5

Equations:

Wafer A: 0.7 w1 + 0.2 w2 = 0.5

Wafer B: 0.3 w1 + 0.8 w2=0.5

Multiplying both side of the equation 1 by 4 and subtracting second from first gives,

w1=0.60 w2=0.40

Therefore,

Inserting dies cost pool = 350,000*0.60 = $210,000

Purchasing cost pool = 350,000*0.40 = $140,000

Part 2

Wafer A : (0.70 *$210,000) + (0.20 * $140,000) = $175,000

Wafer B: (0.30* $210,000)+ (0.80 *$140,000) = $175,000

Part 3

Global ratios:

Wafer A =(175,000/350,000)= 0.5

Wafer B =(175,000/350,000)= 0.5

Equations:

Wafer A: 0.25 w1 + 0.60 w2 = 0.5

Wafer B: 0.75 w1 + 0.40 w2=0.5

Multiplying both side of the equation 1 by 3 and subtracting second from first gives,

w1=0.2857 w2=0.7143

Thus,

Developing test programs Cost Pool= 350,000*0.2857 = $100,000

Testing Products Cost Pool= 350,000*0.7143 = $250,000

Wafer A: (0.25 *$100,000) + (0.60 *250,000 )= $175,000

Wafer B: (0.75 * $100,000) + (0.40 x $250,000) = $175,000

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