Quasi-Tech Corporation Produces Specially Machined Parts Owens Produces Two Models: Model

question 94

Multiple Choice

Quasi-Tech 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: $\begin{array} { c c c c } \text { Activity } & \text { Expected Cost } & \text { Activity Driver } & \text { Activity Capacity } \\ \text { Engineering } & \$ 1,000,000 & \text { engineering hours } & 5,000 \text { hours } \\ \text { Setups } & \$ 900,000 & \text { setups } & 200 \text { setups } \\ \text { Machining } & \$ 2,000,000 & \text { machine hours } & 25,000 \text { machine hours } \\ \text { Inspection } & \$ 800,000 & \text { inspection hours } & 2,500 \text { inspection hours } \end{array}$
Owens produces two models: Model $X$ and Model Y. The following table shows how the two products consume activity.
$\begin{array}{lcc}&\text { Model C } & \text { Model D }\\\text { Units completed } & 300,000 & 200,000 \\\text { Engineering hours } & 1,000 & 4,000 \\\text { Setups } & 80 & 120 \\\text { Machine hours } & 20,000 & 5,000 \\\text { Inspection hours } & 1,500 & 1,000\end{array}$ First, determine the overhead costs assigned to model D using the two most expensive activities for cost pools. The costs of the two relatively inexpensive activities are allocated to the two most expensive activities in proportion to their costs. (Round to two decimal places.) What is the error in the overhead cost assigned to model D using ABC (4 driver model) as the benchmark?

• A)$180,030
• B)$240,700
• C)$313,330
• D)$626,650

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