Airepart, Inc., produces two different types of subassemblies for the aircraft industry. Airepart produces a major component for the subassemblies in the cutting and welding department. Other parts and the manufactured component are then assembled in the assembly department. The activities, expected costs, and drivers associated with these two manufacturing processes are as follows:
Other overhead activities, their costs, and drivers are as follows:
Other production information concerning the two subassemblies is also provided as follows:
The per-unit overhead costs using the 14 activity-based drivers are $1,108 and $779 for Subassemblies A and B, respectively.
1. Determine the percentage of total costs represented by the three most expensive activities.
2. Allocate the costs of all other activities to the three activities identified in Requirement 1. Allocate the other activity costs to the three activities in proportion to their individual activity costs. Now assign these total costs to the products using the drivers of the three chosen activities.
3. Using the costs assigned in Requirement 1, calculate the percentage error using the ABC costs as a benchmark. Comment on the value and advantages of this ABC simplification.