Due to the increased intensity of competition, the company is contemplating the activitybased costing method to help understand and control its costs better. The following are the costing and operating details collected for the pilot testing purpose. Material Handling QA Total Documentation $750,000 $1,100,000 $1,850,000 Fork Lift Truck Depreciation $500,000 $250,000 $750,000 Palletizing $1,250,000 - $1,250,000 Inspection - $650,000 $650,000 Total $2,500,000 $2,000,000 $4,500,000 Number of process checklist forms 7
Due to the increased intensity of competition, the company is contemplating the activitybased costing method to help understand and control its costs better. The following are the costing and operating details collected for the pilot testing purpose. Material Handling QA Total Documentation $750,000 $1,100,000 $1,850,000 Fork Lift Truck Depreciation $500,000 $250,000 $750,000 Palletizing $1,250,000 - $1,250,000 Inspection - $650,000 $650,000 Total $2,500,000 $2,000,000 $4,500,000 Number of process checklist forms 7
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Due to the increased intensity of competition, the company is contemplating the activitybased costing method to help understand and control its costs better. The following are the costing and operating details collected for the pilot testing purpose.
| Material Handling | QA | Total | |
| Documentation | $750,000 | $1,100,000 | $1,850,000 |
| Fork Lift Truck |
$500,000 | $250,000 | $750,000 |
| Palletizing | $1,250,000 | - | $1,250,000 |
| Inspection | - | $650,000 | $650,000 |
| Total | $2,500,000 | $2,000,000 | $4,500,000 |
| Number of process checklist forms | 7 | 17 | 13 | 37 |
| Fork Lift Truck Hours | 15 | 35 | 25 | 75 |
| Number of pallets | 25 | 145 | 80 | 250 |
| Number of inspection hours | 400 | 1,100 | 1,000 | 2,500 |
Question
1. Compute the activity-based cost allocated to all products. Would you recommend for the change to ABC? Explain
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