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abc activity a r ea c o s t dri v er r ates c exercise 11 11 reports abc data for th 737053

ABC, activity a r ea c o s t dri v er r ates. (c

Exercise 11.11 reports ABC data for the three activity areas (cleaning, cutting and packag ing) on a per output unit basis (per kilogram of chips). This format emphasises product costing. An alternative approach that emphasises the costs of individual processes (activi ties) is to identify (a) the costs at each activity area, and (b) the rate per unit of the cost driver at each activity area. The following information pertains to (a) and (b):

Cleaning activity area: McCarthy used 1.2 million kilograms of raw potatoes to yield 1 million kilograms of chips. No distinction is made as to the end product when cleaning potatoes. The cost driver is kilograms of raw potatoes cleaned.

Cutting activity area: McCarthy processes raw potatoes for the retail market independ ently of those processed for the institutional market. The production line produces (a)

250 kg of retail chips per cutting hour, and (b) 400 kg of institutional chips per cutting hour. The cost driver is cutting hours on the production line.

Packaging activity area: McCarthy packages chips for the retail market independently of those packaged for the institutional market. The packaging line packages (a) 25 kg of retail chips per packaging hour, and (b) 100 kg of institutional chips per packaging hour. The cost driver is packaging hours on the production line.

Required

1 What are the total activity costs in the (a) cleaning, (b) cutting and (c) packaging activity areas?

2 What is the cost rate per unit of the cost driver in the (a) cleaning, (b) cutting and (c)

packaging activity areas?

3 How might McCarthy Potatoes use information about the cost driver rates calculated in requirement 2 to better manage the Longford plant?

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