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Garber Company: Compute cost driver rates, and ABC costing

Please see the attached file.

Garber Company uses a traditional activity-based costing system to assign $600,000 of committed resource costs for customer service on the basis of the following information gathered from interviews with customer service personnel:

Activity Time Percentage Estimated Cost Driver Quantity
Handle customer orders 75% 8000 customer orders
Process customer complaints 10% 400 customer complaints
Perform customer credit checks 15% 450 credit checks
100%

A. Compute the activity cost driver rates using this system

B. Suppose instead Garber uses time-driven activity-based costing to assign the $600,000 of committed resource costs to the three activities

Compute the time driven activity cost driver rates, assumming 10,000 hours of useful work and the unit time estimates that follow:

Activity Unit Time (hours)
Handle customer orders 0.75
Process customer complaints 3.5
Perform customer credit checks 3

C. Suppose that the quantities of activities this period are 8,000 customer orders, 400 customer complaints, and 450 credit checks. Using the information and activity cost driver rates developed in B, determine the cost assignend to each of the activities and estimated hours of unused capacity as well as the associated cost. What actions might managers take on evaluating such information?

D. Suppose that in the next time period, the quantities of activites change to 8,500 customer orders, 350 customer complaints, and 500 credit checks. Using the information and activity cost driver rates developed in B, determine the cost assignend to each of the activities and estimated hours of unused capacity as well as the associated cost.

E. Explain why the activity cost driver rates computed in A are different from the rates computed in B.

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Solution Summary

Discussion helps you to make sense of the results. Computations shown in excel (formulas in cells).

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