Resource and Activity-Based Cost Drivers EyeGuard Equipment Inc. (EEI) manufactu
ID: 2419403 • Letter: R
Question
Resource and Activity-Based Cost DriversEyeGuard Equipment Inc. (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines—the highest-quality product is called Safe-T, and a low-cost, value version is called Safe-V. Information on the factory conversion costs for EEI is as follows:
EEI uses ABC costing to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging.
The activity cost drivers for the two products are summarized below.
Required
Determine the amount of the cost pool for each of the four activities.
Determine the activity-based rates for assigning factory costs to the two products.
Determine the activity-based unit cost for each of the products.
What is the strategic role of the information obtained in requirement 3?
The quantities of resource consumption cost drivers used were based on rough estimates. Under what conditions would you recommend that more accurate cost driver data be collected?
Factory Costs Salaries $ 850,000 Supplies 150,000 Factory expense 550,000 $1,550,000Explanation / Answer
Answer: Determine the amount of the cost pool for each of the four activities.
The activity based cost pools are determined from the percent-of-use information; for example, total setup cost = $157,500 = .15 x $850,000 + .2 x $150,000
The activity rates are determined as follows:
The per unit activity-based costs are $14.18 for Safe-V and $18.63 for the Safe-T
The activity-based information can be used by EEI to set prices and assess the profitability of its two product lines.
Particulars Factory costs Setup Assembly Inspect & Finishing Packaging Salaries 850000 127500 467500 170000 85000 Suppliers 150000 30000 90000 30000 Factory exp 550000 440000 110000 Total 1550000 157500 997500 310000 85000Related Questions
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