Owens Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. Costs have been assigned to each activity using direct tracing and resource drivers:
$\begin{array}{llll}
\text { Activity } & \text { Expected Cost } & \text { Activity Driver }&\text { Activity Capacity }\
\text { Engineering } & \$ 1,000,000 & \text { engineerng hours } & 5,000 \text { hours } \
\text { Setups } & \$ 900,000 & \text { setups } & 200 \text { setups } \
\text { Machining } & \$ 2,000,000 & \text { machine hours } & 25,000 \text { machine hours } \
\text { Inspection } & \$ \quad 800,000 & \text { inspection hours } & 2,500 \text { inspection hour }
\end{array}$ Owens produces two models: Model X and Model Y.The following table shows how the two products consume activity.
$\begin{array}{lll}&\text { Model X }&\text { Model Y }\
\hline \text { Units completed } & 300,000 & 200,000 \
\text { Engineering hours } & 1,000 & 4,000 \
\text { Setups } & 80 & 120 \
\text { Machine hours } & 20,000 & 5,000 \
\text { Inspection hours } & 1,500 & 1,000
\end{array}$
-Refer to the figure.If overhead costs assigned to model Y using the machining and engineering activities for cost pools and the costs of the set-ups and inspection activities are allocated to the two machining and engineering activities in proportion to their costs (Round to two decimal places.)what is the error in the overhead cost assigned to model Y using ABC (4 driver model)as the benchmark?

Question

Owens Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting.  Costs have been assigned to each activity using direct tracing and resource drivers:
$\begin{array}{llll}
\text { Activity } & \text { Expected Cost  } & \text { Activity Driver }&\text { Activity Capacity }\
\text { Engineering } & \$ 1,000,000 & \text { engineerng hours } & 5,000 \text { hours } \
\text { Setups } & \$ 900,000 & \text { setups } & 200 \text { setups } \
\text { Machining } & \$ 2,000,000 & \text { machine hours } & 25,000 \text { machine hours } \
\text { Inspection } & \$ \quad 800,000 & \text { inspection hours } & 2,500 \text { inspection hour }
\end{array}$ Owens produces two models: Model X and Model Y.The following table shows how the two products consume activity.
 $\begin{array}{lll}&\text { Model X }&\text { Model Y }\
\hline \text { Units completed } & 300,000 & 200,000 \
\text { Engineering hours } & 1,000 & 4,000 \
\text { Setups } & 80 & 120 \
\text { Machine hours } & 20,000 & 5,000 \
\text { Inspection hours } & 1,500 & 1,000
\end{array}$
-Refer to the figure.If overhead costs assigned to model Y using the machining and engineering activities for cost pools and the costs of the set-ups and inspection activities are allocated to the two machining and engineering activities in proportion to their costs (Round to two decimal places.)what is the error in the overhead cost assigned to model Y using ABC (4 driver model)as the benchmark?

Quizplus · Accepted Answer

The error in the overhead cost assigned to model Y using ABC (4 driver model) as the benchmark is $180,030.00. This is because the overhead cost assigned to model Y using the machining and engineering activities for cost pools and the costs of the set-ups and inspection activities are allocated to the two machining and engineering activities in proportion to their costs, which is not an accurate reflection of the actual consumption of these activities by model Y.

Owens Corporation Produces Specially Machined Parts Owens Produces Two Models: Model X and Model Y