Glock company has identified hte following overhead activities, costs, and activity drivers for the coming year:
- Activity Expected cost Activity driver Activity capacity
- Setting up equipment 252000 number of setups 300
- ordering materials 36000 number of orders 1800
- Machining 252000 machine hours 21000
- Receiving 60000 receiving hours 2500
Glock produces two models of cell phones with the following expected activity demand:
- Model A Model B
- Units completed 10000 20000
- Number of setups 200 100
- number of orders 600 1200
- Machine hours 12000 9000
- Receiving hours 750 1750
Required:
1) Determine the total overhead assigned to each product using the four activity drivers.
2) Determine the total overhead assigned to each model using the two most expensive activities.
3) Using ABC as the benchmark, calculate the percentage error and comment on the accuracy of the reduced system. Explain why this approach may be desirable.