Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 28

Resource and Activity-Based Cost Drivers EyeGuard Equipment Inc. (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines-the highest-quality product is called Safe-T, and a low-cost, value version is called Safe-V. Information on the factory conversion costs for EEI is as follows:

EEI uses ABC costing to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging.

The activity cost drivers for the two products are summarized below.

Required
1. Determine the amount of the cost pool for each of the four activities.
2. Determine the activity-based rates for assigning factory costs to the two products.
3. Determine the activity-based unit cost for each of the products.
4. What is the strategic role of the information obtained in requirement 3
5. The quantities of resource consumption cost drivers used were based on rough estimates. Under what conditions would you recommend that more accurate cost driver data be collected