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Plastics Company makes just two product lines, plastic casings for pens and plastic casings for cell phones.
Based on new information, management has adjusted the percentages that apply to the first stage of the ABC system as shown below.
Indirect Resource
Percent of Resource Used in Plant and Machinery Engineers and CAD Equipment
Processing activity
Production support activity
The process map depicts a twostage ABC system, which uses two stages of allocation to get from the original indirect resource cost to the final product or service cost.At this point,
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Plastics uses the ABC system only for production costs, so the
$ comma $
of nonproduction valuechain costs remains unallocated. The first stage allocates indirect resource costs to activitycost pools, in this case two activities, processing activity and production support activity. The second stage allocates activity costs to the products or services. In essence, the cost objects in the first stage are the activities, and the cost objects in the second stage are the products.
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Plastics has only two indirect resources, plant and machinery and engineers and CAD equipment, and only two activities, processing and production support.
The cost of engineers and CAD equipment depends mainly on the amount of time engineers spend on a product. Engineers spend, on average, about minutes each hour performing productionsupport activities, such as designing casings. They spend the other minutes supervising the processing activity. Thus, we allocate and of the cost of engineers and CAD equipment to the productionsupport and processing activities, respectively. The cost of plant and machinery depends mostly on the square feet of space used. Processing uses of the space and production support uses so processing gets of the plant and machinery cost and production support gets
Data table
