
Concept explainers
a.
Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using machine-hours as a single activity base.
a.

Explanation of Solution
Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using machine-hours as a single activity base.
Robot model |
Machine hours per unit (A) |
Per machine hours in $ (B) |
Amount in $ |
A3B4 | 3.2(3) | 2.50 (2) | 8.00 |
BC11 | 3.0(3) | 2.50(2) | 7.50 |
C3PO | 2.0(3) | 2.50(2) | 5.00 |
(Table 1)
Working Notes:
Calculate total machine hours:
Calculate the
Calculate the machine hours on per-unit basis:
Robot model |
Machine hours (A) |
Units of production (B) |
Machine hours per -unit |
A3B4 | 20,000 | 6,250 | 3.2 |
BC11 | 15,000 | 5,000 | 3.0 |
C3PO | 5,000 | 2,500 | 2.0 |
(Table 2)
(3)
b.
Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using the proposed ABC method.
b.

Explanation of Solution
Activity-based costing:
It is a method that helps in finding the activities performed by a company and it tracks the indirect costs to the activities of the company that consumes resources.
Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using the proposed ABC method.
Particulars | Robot model | |||
Total costs allocated | A3B4 in $ | BC11 in $ | C3PO in $ | Total in $ |
Repairs cost pool (9) | 2,500 | 7,500 | 10,000 | 20,000 |
Add: Janitorial cost pool (11) | 10,000 | 20,000 | 50,000 | 80,000 |
Total costs allocated (A) | 12,500 | 27,500 | 60,000 | 100,000 |
Units produced (B) | 6,250 | 5,000 | 2,500 | |
Maintenance cost per unit (A÷B) | 2 | 6 | 24 |
(Table 3)
Working notes:
Calculate the percent of work orders used for repairs activities:
Calculate the percent of machine hours used for janitorial activities:
Calculate percent of work orders used in each activity pools:
Particulars | Work orders | Percent to total |
Repairs activities | 400 | 20% (4) |
Janitorial activities | 1,600 | 80% (5) |
Total work orders issued | 2,000 | 100% |
(Table 4)
(6)
Product lines |
Total amount in $ (A) |
Percentage of Allocation (B) |
Cost Allocated |
Repairs activities | 100,000 | 20% (6) | 20,000 |
Janitorial activities | 100,000 | 80% (6) | 80,000 |
Total | 80,000 |
(Table 5)
(7)
Calculate the percent of repairs cost pool to the allocated to each product line using the number of production runs as an activity base.
Particulars | Number of production runs | Percent of total |
Production runs for A3B4 | 50 | 12.5% |
Production runs for BC11 | 150 | 37.5% |
Production runs for C3PO | 200 | 50.0% |
Total production runs | 400 | 100.0% |
(Table 6)
(8)
Allocate the repairs cost pool to each of the product line based on the percentage.
Particulars | Amount in $ |
Costs allocated to A3B4 | 2,500 |
Costs allocated to BC11 | 7,500 |
Costs allocated to C3PO | 10,000 |
Total order costs allocated to products | 20,000 |
(Table 7)
(9)
Calculate the percent of janitorial pool to the allocated to each product line using the number of production runs as an activity base.
Particulars | Percent of total | |
Production runs for A3B4 | 5,000 | 12.5% |
Production runs for BC11 | 10,000 | 25.0% |
Production runs for C3PO | 25,000 | 62.5% |
Total square feet occupied | 40,000 | 100.0% |
(Table 8)
(10)
Allocate the janitorial cost pool to each of the product line based on the percentage.
Particulars | Amount in $ |
Costs allocated to A3B4 | 10,000 |
Costs allocated to BC11 | 20,000 |
Costs allocated to C3PO | 50,000 |
Total order costs allocated to products | 80,000 |
(Table 9)
(11)
c.
Explain whether cost allocations distorted using machine-hours as a single activity base
c.

Explanation of Solution
Using machine hours as a single activity base will result in cost distortions for Company D. The largest distortion, related to robot model C3PO are due to two reasons:
- The machine hours taken for producing robot model C3PO is comparatively less and the company needs more number of production runs to produce robots.
- The robot C3PO denotes a relatively small portion of total production on a per-unit basis and it requires relatively large proportion of square footage to produce.
- The company considers production run and square footage as primary cost drivers. Therefore, the amount allocated for producing robot C3PO is understated on a per-unit basis, and they are shown below:
Particulars | Robot model A3B4 | Robot model BC11 | Robot model C3PO |
Maintenance cost per unit (Using activity based costing ) | $ 2.00 | $ 5.50 | $ 24.00 |
Maintenance cost per unit (Using machine hours) | $ 8.00 | $ 7.50 | $ 5.00 |
(Table 10)
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