5-56    Resource and Activity-Based Cost Drivers EyeGuard Equipment Inc. (EEI) manufactures protec- tive eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines—the

 

 

 

 

 

highest-quality product is called Safe-T, and a low-cost, value version is called Safe-V. Information on the factory conversion costs for EEI is as follows:

 

 

Factory Costs

 

Salaries	$ 850,000
Supplies	150,000
Factory expense	550,000

$1,550,000

 

 

EEI uses ABC costing to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging.

 

 

  Salaries	Setup 15%	Assembly 55%	Inspect & Finishing 20%	Packaging 10%	  100%
Supplies	20%	60%	20%	Â	100%
Factory expense	Â	80%	20%	Â	100%

 

The activity cost drivers for the two products are summarized below.

 

 

Activities                        Activity Driver

Setup                            Batch

Assembly                        Units

Inspect and finishing              Hours

Packaging                       Hours

 

 

 

  Batches	Safe-V 250	Safe-T 600
Units	60,000	72,000
Finishing hours, per unit	0.2	0.3
Packaging hours, per unit	0.1	0.15
Materials per unit	$ 3.50	$ 6.00

 

Required

1.    Determine the amount of the cost pool for each of the four activities.

2.    Determine the activity-based rates for assigning factory costs to the two products.

3.    Determine the activity-based unit cost for each of the products.

4.    What is the strategic role of the information obtained in part 3?