Answer:

1)Calculation of unit overhead cost of Special model using machine hours is as follows:

Activity based costing (ABC) is the method of costing used to calculate the cost of the product based on their activities rather than other bases like original costing. Under this method overhead cost of activity is identified and assigned to the units based on their number of activities. This method can be helpful to calculate the accurate cost of the product.

Calculation of unit overhead cost of Special model using ABC is as follows:

Machining cost = $5,400,000

Machine hours = 90,000

Rework cost = $1,800,000

Total rework hours = 45,000

Inspection cost = $3,600,000

Total inspections = 45,000

Calculate total plant wide rate:

Calculate total Overhead Cost:

Calculate Unit Overhead Cost:

By using the ABC model, the unit overhead cost reduces by $19 ($60 - $41) but the required reduction is $20, which is still not achieved. This shows that cost should be further reduced to achieve the desired level.

2)Compute the cost of special model:

The activity rate will remain same with the change in inspection and rework costs and inspection and rework time by 50% but the Total overhead cost will change as follows:

Actual inspection hours = 10,000

50% reduced = 5,000

Actual rework hours = 7,500

After reduced 50% hours = $3,750

Total Overhead Cost:

Unit Overhead Cost:

Now, the cost is reduced by $24.50 ($60 - $35.50) from the original cost, which shows that the desired level of reduction of $20 has been achieved by management. ABC deals with how the costs are assigned, whereas ABM deals with assignment of cost as well as reduction of costs.

Hence, ABM has two aspects i.e. Cost accuracy and Cost reduction.

Answer:

1.Flexible budget formula for the welding activity:

Acquired in advance of usage:

Calculations:

Acquired as needed:

2.Performance report for the welding activity:

3. The cost of welding equipment is fixed, the variable cot s the $30 per hour of welding equipment plus the $100 per hour for parts and supplies.

Answer:

List the planning considerations while implementing an ABM system:

Planning must be capable of:

• Determining the usage and goals of an ABM system,

• Its deadline for adoption,

• The allocated authorities and responsibilities,

• Resource requirement,

• The existed and planned future competitive position,

• The business operations and product mix, and

• The capability of the company to adopt the advanced system and to know the application of the latest information generated