Why the cost assigned to each product remains the same

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Reference no: EM13949489

Tristar Manufacturing produces two types of battery-operated toy soldiers: infantry and special forces. The soldiers are produced using one continuous process. Four activities have been identified: machining, setups, receiving, and packing. Resource drivers have been used to assign costs to each activity. The overhead activities, their costs, and the other related data are as follows:

Product	Machine Hours	Setups	Receiving Orders	Packing Orders
Infantry	20,000	300	200	2,400
Special forces	20,000	100	400	800
Costs	$80,000	$32,000	$18,000	$48,000

Required

1. Classify the overhead activities as unit-level, batch-level, product-level, or facility-level.

2. Assign the overhead costs to each product using ABC. Now combine the setup and packing activities into one cost pool and repeat the assignment using the number of setups as the driver. Explain why the cost assigned to each product remains the same.

3. Given the results of Requirement 2 (after combining and reducing to three pools), reduce the number of pools to two by using the two most expensive activities as only two cost pools and allocating the remaining activity costs to the other two pools based in proportion to their costs.

4. Calculate the percentage difference in the approximately relevant product cost and the ABC product cost. Now calculate the error if machine hours had been used as a single plantwide rate. Comment on the merits of the approximating approach.

Reference no: EM13949489

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