Activity-based costing system: ABC

>< Traditional costing system: use only one/two allocation bases(tiêu thức phân bổ): Machine
hours/labor hours / units

Pty Ltd. Hardy Saucepans Corporation manufactures and sells saucepans and other kitchen
equipment directly to customers, as well as to retail stores. To produce its saucepan set, the
company purchases raw materials and components from a range of suppliers. We will focus on the
two suppliers of the plastic handles(material) for the standard saucepan sets: Plastex Industries
and Handles Ltd.Hardy Saucepans(2 suppliers) has been ordering the plastic handles from both
suppliers for many years. Hardy Saucepans retain two suppliers for this component as it believes
this practice is less risky than relying on a single supplier that might sometimes experience delivery
or quality problems. Most orders are placed with Plastex Industries, as it charges only $2 per
handle , whereas Handles Ltd charges $2.2 per handle. In the past year, Hardy Saucepans
purchased a total of 10,000 units from Pastex and 6,000 units from Handles Ltd. The accountant
and the 10000/6000=1.6

Activity Cost per unit of activity Number of activities

driver Plastex Handles
Unit level
- Rework product due to poor- $50/unit reworked 45 5
quality material
- Downtime due to poor-quality $45/ hour of downtime 30 4
material
- Store inventory $28/ unit stored/year 200 100
Order level
- Place purchase order $120/order 12 10
- Receiving a delivery $80/delivery 60 45
- Inspect material $40/delivery 60 45
- Receive and inspect late $250/late delivery 10 1
deliveries
Supplier level
- Supplier relationship manager $25,000/supplier v
- Supplier audit $12,000 (Plastex)
- $6,000 (Handles) v
- R&D $25,000 (Plastex) v
 Activities Plastex Handles
Total units purchased 10000 6000
Purchase price per unit $2 $2.2
Supplier activity costs
Unit level
- Rework product 2250(50x45) 250(50x5)
due to poor-quality
material
- Downtime due to 1350(45x30) 180(45x4)
poor-quality
material
- Store inventory 200x28=5600 100x28=2800
Order level
- Place purchase 12x120=1440 10x120=1200
order
- Receiving a delivery 60x80=4800 45x80=3600
- Inspect material 60x40=2400 45x40=1800
- Receive and inspect 10x250=2500 250x1=250
late deliveries
Supplier level
- Supplier 25000 25000
relationship
manager
- Supplier audit 12000 6000
- R&D 25000 0
Total supplier activity 82340 41080
costs
Total supplier activity 8.230 6.8467
cost per unit (=82340/10000 =41080/6000
)
Total cost of ownership 10.234 9.0467
per unit =8.230+2 =6.8467+2.2
 Should buy Handles.
 Cost per unit of activity driver =[(Total cost of rework)/(Total unit reworked=Allocation
based)]x Unit reworked
=$50/u x 45 unit