Apply the Concepts, Cost Reporting
Medco Inc., a manufacturing firm, has four activities: purchasing materials, molding, inspecting molds, and grinding imperfect molds. Purchasing
materials and molding are necessary activities; inspection and grinding are unnecessary. SQ provides the value-added quantity for each activity; AQ is
the actual activity output. The following data pertain to the four activities for the year ending (actual price per unit of the activity driver is assumed to
be equal to the standard price):
Activity
Activity Driver
SQ
AQ
SP
Purchasing Purchasing hours
28,000
34,000
$20
Molding
Molding hours
42,000
47,600
12
Inspecting Inspection hours
0
8,400
15
Grinding
Number of units
0
6,000
6
Required:
dded costs non-value-added costs, and total costs for each activity by completing
3. Purchasing is a step-fixed cost with each step being 2,000 hours. Suppose that the efficiency of purchasing is increased so that the demand for the
purchasing activity is 31,000 hours. What is the reduction in the cost achieved by the increased efficiency?
Reduction:
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