Question

skynet (PDI) recently started operations to obtain a share of the growing flight market. PDI manufactures two models of specialty drivers: The X1 model and the X2 model. The company was formed as a partnership by two professional engineers and a professional piolet, none of whom had any accounting experience. The business has been very successful, and to cope with the increased level of activity, the partners have hired a professional accountant as their controller. One of the first improvements the controller wants is an update of the costing system, changing from a single overhead application rate using direct labour-hours to activity-based costing. The controller has identified the following three activities as cost drivers, along with the related cost pools:

Model	# of Materials Required	# of Product Inspections	# of Orders Shipped
X1	460	170	167
X2	620	240	129
Total Costs in Pool	$594,000	$82,000	$185,000

Required:

Using ABC, prepare a schedule that shows the allocation of the costs of each cost pool for each model. Show your calculations.

Answer 1

	Modex X1	Modex X2
No of materials Required	460	620
Cost per material	$550	$550
Materials cost	$253,000	$341,000
No of Product inspeciton	170	240
Cost per inpsection	$200	$200
Product inspeciton	$34,000	$48,000
No of Orders shipped	167	129
Cost per order	$625	$625
Ordering cost	$104,375	$80,625
Total cost allocated	$391,375	$469,625

Working Notes:

Activity	Cost pool	Cost Drivers	Drivers	ABC Rate
Materials required	$594,000	No of Materials required	1080	$550
Product inspeciton	$82,000	No of Product inspeciton	410	$200
Orders	$185,000	No of Orders shipped	296	$625