Reference no: EM132379827

Assignment

Required:

Prepare an activity dictionary with three categories: activity name, activity description, and activity driver.

Activity Name

Providing nursing care Supervising nurses

Feeding patients

Laundering bedding and clothes Providing physical therapy

Monitoring patients

Cleaning and delivering clothes and bedding

Coordinating nursing activities

Providing meals to patients

Satisfying patient needs

Therapy treatments directed by physician

Using equipment to monitor patient conditions

Formation of an Activity Dictionary

A hospital is in the process of implementing an ABC system. A pilot study is being done to assess the effects of the costing changes on specific products. Of particular interest is the cost of caring for patients who receive in-patient recovery treatment for illness, surgery (noncardiac), and injury. These patients are housed on the third and fourth floors of the hospital. The floors are dedicated to patient care and have only nursing stations and patient rooms. A partial transcript of an interview with the hospital's nursing supervisor is as follows:

1. How many nurses are in the hospital?

2. Of these 100 nurses, how many are assigned to the third and fourth floors?

3. What do these nurses do (please describe)?

Provide nursing care for patients, which, as you know, means answering questions, changing bandages, administering medicine, changing clothes, etc.

4. And what do you do?

5. What other lodging and care activities are done for the third and fourth floors by persons other than the nurses?

6. Do patients use any equipment?

7. Who or what uses the activity output?

Type of Activity Management

The following six situations at Diviney Manufacturing Inc. are independent.

Required:

For each situation, identify the cost reduction measure: activity elimination, activity reduction, activity sharing, or activity selection.

a. A manual insertion process takes 30 minutes and 8 pounds of material to produce a product. Automating the insertion process requires 15 minutes of machine time and 7.5 pounds of material. The cost per labor hour
is $12, the cost per machine hour is $8, and the cost per pound of materials is $10.

b. With its original design, a gear requires 8 hours of setup time. By redesigning the gear so that the number of different grooves needed is reduced by 50%, the setup time is reduced by 75%. The cost per setup hour is $50.

c. A product currently requires 6 moves. By redesigning the manufacturing layout, the number of moves can be reduced from 6 to 0. The cost per move is $20.

d. Inspection time for a plant is 16,000 hours per year. The cost of inspection consists of salaries of 8 inspectors, totaling $320,000. Inspection also uses supplies costing $5 per inspection hour. The company eliminated most defective components by eliminating low-quality suppliers. The number of production errors was reduced dramatically by installing a system of statistical process control. Further quality improvements were realized by redesigning the products, making them easier to manufacture. The net effect was to achieve a close to zero-defect state and eliminate the need for any inspection activity.

e. Each unit of a product requires 6 components. The average number of components is 6.5 due to component failure, requiring rework and extra components. Developing relations with the right suppliers and increasing the quality of the purchased component can reduce the average number of components to 6 components per unit. The cost per component is $500.

f. A plant produces 100 different electronic products. Each product requires an average of 8 components that are purchased externally.

The components are different for each part. By redesigning the products, it is possible to produce the 100 products so that they all have 4 components in common. This will reduce the demand for purchasing, receiving, and paying bills. Estimated savings from the reduced demand are $900,000 per year.

Comparing ABC and Plantwide Overhead Cost Assignments

Wellington Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

Setting up equipment    $572,000

Other overheard    $2,552,000

Setting up equipment is based on setup hours, and other overhead is based on oven hours.

Wellington produces two products, Fudge and Cookies. Information on each product is as follows:

	Fudge	Cookies
Units produced	8,000	445,000
Setup hours	10,400	2,600
Oven hours	2,200	15,400

Required:

Round your answers to the nearest whole dollar, unless otherwise directed.

1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.

a. Setting up equipment

b. Other overhead

2. How much total overhead is assigned to Fudge using ABC?

3. What is the unit overhead assigned to Fudge using ABC? Round to the nearest cent.

4. Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours.

5. How much total overhead is assigned to Fudge using the plantwide overhead rate?