Atlantic Computer manufactures servers and high-tech products. It dominates the traditional server market but seeks to enter the growing basic server market. It developed the Tronn server and PESA software to accelerate Tronn's speed by 4 times. Atlantic must determine pricing for the Tronn-PESA bundle. Four options are analyzed: 1) include PESA for free 2) price competitively against main rival Ontario 3) use cost-plus pricing 4) value-in-use pricing sharing savings. The analysis recommends value-in-use pricing to demonstrate value to customers while allowing for potential profit sharing that benefits both parties.
Atlantic Computers: A Bundle of Pricing OptionsJasmineDennis
The document discusses four pricing strategies for Atlantic Computers' new "Atlantic Bundle" product, which consists of their new Tronn server and PESA software. The strategies are: 1) status-quo pricing, 2) competition-based pricing, 3) cost-plus pricing, and 4) value-in-use pricing. After reviewing the strategies and conducting a break-even analysis, it is recommended to use value-in-use pricing of $4,200 per bundle. This captures the savings customers realize and has one of the lowest break-even points. Recommendations are also provided for training Atlantic's sales force to sell based on the bundle's value and savings. Potential reactions from main competitor Zink
This document discusses several financial analysis techniques including horizontal analysis, vertical analysis, common-size statements, price-earnings ratios, dividend payout ratios, and financial leverage. It provides examples of calculating key financial ratios such as gross margin percentage, earnings per share, price-earnings ratio, dividend payout ratio, return on assets, return on equity, book value per share, current ratio, and acid-test ratio. The document also discusses how to interpret trends in financial statement items over multiple years.
This document contains accounting information for Chemalite for 1991, including balance sheets, income statements, and statements of cash flows for the periods ended June 30, 1991 and December 31, 1991. It records various business transactions that affected Chemalite's assets, liabilities, equity, revenues and expenses. The ending balances on the December 31 statements show cash of $113,000, total assets of $546,875, total equity of $546,875, net income of $46,875 and ending cash balance of $113,000.
SaleSoft, Inc was founded in 1993 to develop software that drives efficiencies in sales, marketing, and customer service processes. Their flagship product is PROCEED, a comprehensive sales automation system (CSAS). PROCEED automates the entire sales cycle from lead generation to post-sales support. SaleSoft is considering launching a new product called Trojan Horse, focused only on sales automation. Trojan Horse would offer quick entry into new customer accounts but could distract from PROCEED and cannibalize its sales. After analyzing the products, market, and financial projections, the recommendation is for SaleSoft to continue focusing on PROCEED due to its strategic alignment and greater long-term returns.
This case study analyzes Benihana of Tokyo, a Japanese restaurant chain known for its hibachi-style cooking experience. Some key points:
- Benihana introduced Americans to hibachi cooking and transformed how they viewed Japanese food. It focused on high quality ingredients, freshness, and interactive cooking shows.
- While food was not entirely traditional Japanese cuisine, the experience centered around entertainment from the chef's cooking skills and customer interaction.
- Benihana had more efficient space and labor costs compared to typical restaurants but invested heavily in chef training to ensure quality and authenticity.
- As it grew popularity, issues like long wait times and high costs from importing all materials from Japan challenged
Global supply chain case study team8_submit v2Meghan Histand
The team selected design options and suppliers that balanced low production costs with flexibility. They split production between overseas and domestic suppliers. For forecasting, they averaged all forecasts rather than following the consensus. They set initial production slightly above forecasts and issued change orders when costs outweighed $2M adjustment fees. Investing in market research helped inform change orders. Overall, balancing costs and flexibility along with responsiveness to new data worked well.
This document discusses PESTLE analysis, a framework for analyzing the macroenvironmental factors that may impact an organization. It defines each letter of the PESTLE acronym - Political, Economic, Social, Technological, Legal, and Environmental factors. For each factor, examples are provided of relevant considerations for analysis. The aims of conducting a PESTLE analysis are also outlined, which is to provide an overview of external factors to inform strategic decision making. A graphical method called PESTLEWeb is described for mapping out the analysis. In conclusion, PESTLE analysis allows businesses to evaluate a wide range of macroenvironmental variables that can influence operations.
The group is analyzing an investment in Lockheed's Tri Star aircraft. They are considering whether to invest in the L-1011 Tri Star or its competitors, the DC-10 trijet and Airbus A-300B. The group will use capital budgeting techniques like net present value (NPV) and internal rate of return (IRR) to evaluate the investments and make a recommendation. Capital budgeting is the process used by businesses to determine whether projects such as new equipment or facilities provide sufficient returns to justify the capital expenditures required.
Kanpur Confectionaries Private Limited (KCPL) is a biscuit manufacturing company that was once successful but is now struggling with increased competition and underproduction. It is considering various options to return to profitability, including accepting a contract manufacturing offer from a competitor or focusing on supplying canteens. The best option is determined to be focusing on canteens as it satisfies the company's objectives of eliminating losses, maintaining brand identity, and adhering to family principles, while also providing opportunity for growth. An action plan is outlined to target premier institutes and increase KCPL's low market share of canteen demand.
Biovail Corporation missed its quarterly earnings guidance for the first time due to a reported $10-20 million shipment loss in a truck accident. However, there were conflicting views on whether the company followed an FOB shipping point or destination contract structure for revenue recognition. An analyst calculated that the lost shipment only represented 0.18 of a truckload, calling into question the reported accident. Additionally, the analyst believed Biovail practiced aggressive accounting and assumed the FOB shipping point structure to recognize revenue for the lost goods. The case shows a dispute over the company's revenue recognition practices.
Dana Wheeler is preparing recommendations for The Fashion Channel's new segmentation and positioning strategy to strengthen its competitive position against main rivals Lifetime and CNN. Three scenarios are suggested: 1) Targeting multiple segments including Fashionistas, Planners & Shoppers and Situationalists with a 20% rating increase but 10% CPM decrease. 2) Targeting just Fashionistas with a 20% rating decrease but 75% CPM increase and $15M in new programming. 3) Targeting Fashionistas and Planners & Shoppers with a 20% rating increase and 25% CPM increase requiring $20M in new programming. Scenario 3 is estimated to generate the highest net income of $168.8M
Linear technology case analysis dividend payout policyHimanshu Gulia
it is a presentation on case analysis of the case dividend payout policy of linear technology and about its decision whether it should pay more dividend or keep it constant
RIN detergent was introduced in 1984 but sales were low for the first 3 years as it was primarily positioned as a fabric washing detergent. However, a 1988 survey found that 65% of users were actually using it as a dishwashing detergent, likely due to its blue color. The document considers alternatives for repositioning RIN, including keeping its dual usage, separating it into distinct fabric softener and dishwashing products, focusing solely on one usage, or changing its primary usage. It ultimately recommends repositioning RIN as both a dishwashing and fabric softening product by introducing a new color for the fabric softening bar to attract non-users while allowing current dishwashing users to continue that
ATLANTIC COMPUTER: A BUNDLE OF PRICING OPTIONS Akshay Jain
There are four main types of pricing strategies from which Atlantic Computers canchoose. First, Atlantic Computers could stay with the status quo and offer software tools for free. Second, it could choose competitive based pricing. Third it could choose from Cost-plus pricing. Finally, it could choose value-in use pricing.In addition to determining which pricing strategy to use, Atlantic
Financial accounting 17th edition williams solutions manualKrisWu123
Download at: https://goo.gl/VEVubs
financial and managerial accounting 17th edition solutions pdf
financial and managerial accounting 16th edition answers
financial and managerial accounting 17th edition solutions free
financial and managerial accounting solutions pdf
financial and managerial accounting the basis for business decisions 17th edition solutions
financial and managerial accounting 16th edition solutions pdf
financial accounting solution manual pdf
financial and managerial accounting 16th edition answers pdf
The carbonated soft drink (CSD's) industry was dominated by Coca Cola and Pepsi vying for market share. The CSD organizations gained market share in the U.S. and in global markets extending their brands’ recognition and capturing sales from new markets. The shift in consumer beverage preference and the expansion into global markets proved to uncover new opportunities for growth and profitability. In addition the changes in the organizational structure of business for these companies have allowed them to sustain growth beyond CSD’s.
Heinz Case Study: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES sadia butt
H.J. Heinz faced difficulties in estimating its weighted average cost of capital (WACC) due to stock price fluctuations, low interest rates, and uncertainty about consumer risk appetite. This made it hard to accurately evaluate new projects. Specifically, Heinz's stock price fell from $47 to $34 in 2008 but returned to $47 by 2010. Additionally, interest rates remained low, and it was unclear how this affected consumer risk tolerance. As a result, the company struggled to settle on an appropriate WACC value.
Josh, a recent graduate, is dissatisfied in his junior marketing role where he handles menial tasks. He feels unmotivated and that his ideas are dismissed by his manager Sarah. Josh directly pitches an idea to the CEO without informing Sarah, damaging their relationship. The document recommends building trust between Josh and Sarah by giving Josh more meaningful work, clearly outlining his career path, and making him feel heard. Fostering understanding between generations through open communication is key to motivating and retaining younger workers.
Manufacturers need product costing systems to measure and record the costs of manufactured products for both external financial reporting and internal decision making. There are three main categories of costs included in Work in Process Inventory: direct materials, direct labor, and manufacturing overhead. Job-order costing systems, which accumulate costs by job, are generally used by companies producing unique or batch products, while process costing systems are used by companies producing large volumes of identical items.
This document contains discussion questions about factory overhead and predetermined overhead rates. It begins with 14 questions (Q12-1 to Q12-14) about topics such as common factory overhead expenses, reasons for overhead variation, uses of predetermined overhead rates, bases for applying overhead, and analysis of over- or underapplied overhead. It then presents two exercises (E12-1 and E12-2) that provide numerical problems to calculate overhead rates and allocate overhead to work in process.
Departmental overhead rates are preferred to a single overhead rate because they improve control of controllable overhead costs and increase costing accuracy when products move through multiple departments. Departmental overhead rates involve estimating overhead for each department, rather than just total factory overhead. Using departmental rates results in different amounts of applied overhead and product costs depending on the labor hours and rates for each department. Non-manufacturing businesses can also benefit from departmentalization to better budget and control costs by department.
Acc mgt noreen03 systems design activity based costingJudianto Nugroho
The document provides an overview of activity-based costing (ABC). It begins by explaining the limitations of traditional costing methods and why ABC was developed. ABC assigns overhead costs to products based on their consumption of activities, rather than a single allocation base like direct labor hours. The document then demonstrates how to design and implement an ABC system using an example company. It shows how ABC can assign costs differently than traditional methods and help identify areas for process improvement.
This document discusses key aspects of job-order costing systems. It explains that job-order costing is used when many different products or services are produced each period and each job is unique. It also describes how overhead costs are allocated using a predetermined overhead rate. The document provides examples of how costs such as direct materials, direct labor, and manufacturing overhead are recorded on job cost sheets and used to determine the cost of completed jobs. It also discusses how underapplied or overapplied overhead is handled at the end of a period.
Chapter 5 Costing Methods Part 1 (1).pptxshawalhamzah
The document discusses job order costing and its key aspects. It defines job order costing as work done based on a customer's special requirements using direct materials, direct labor, and production overheads. It outlines the steps in job order costing which include estimating costs, issuing a production order, tracking costs on a job cost sheet, and calculating the total job cost by adding direct costs and allocated overheads. Source documents for collecting costs include material requisition forms, time records, and invoices. Overheads are allocated using predetermined overhead rates.
WHY IS THE ALLOCATION METHOD USED IN ACCOUNTING FOR THE DIFFERENCE BETWEEN AP...Mashfiq Albartross
To determine the cost of goods we have to determine the factory overhead. Cost of goods are included all the costs occurred during the production including direct and indirect material, labor and all the factory overhead costs. We use allocation method to determine the factory overhead costs. If we can’t determine the factory overhead costs we can’t find out the actual cost of the goods those are produced and the sale value we can’t determine correctly. Because cost of a good is consisted with factory overhead costs. Factory overhead expenses should be determined otherwise understated rate of a good can occur. Because if we can’t determine the factory overhead costs we can’t actually determine the cost of a good that is prepared for sale.
Allocation methods are used to determine factory overhead costs. Organizations use Applied or Actual factory overhead allocation methods to determine the Factory overhead costs. Cost of goods are lied with these factory overhead costs. So if we need to determine the amount in which we need to sale a good we need to determine it’s total manufacturing costs. Otherwise loss will occur.
Raw Materials Inventory at April 30 = $4,000
b. Direct labor hours.......................................................... 1,200
Direct labor rate per hour............................................... × $15
Direct Labor Cost
Factory overhead comprises indirect expenses associated with operating a manufacturing plant that cannot be directly charged to a specific product. These costs are divided into three categories: indirect materials, indirect labor, and other indirect costs. Factory overhead is calculated by adding indirect material costs, indirect labor costs, and other indirect costs. It can then be applied to products on a per unit basis. Variances may occur if actual overhead differs from the estimated overhead applied to products.
Factory overhead comprises indirect expenses associated with operating a manufacturing plant that cannot be directly charged to a specific product. These costs include indirect materials, indirect labor, and other indirect costs like rent, utilities, and depreciation. Factory overhead is classified as either fixed or variable. Variance analysis involves calculating the budget or spending variance and volume or capacity variance to determine if overhead was over-applied or under-applied compared to the estimated amounts. Formulas are used to calculate variances based on actual, standard, and budgeted overhead rates and costs.
Factory overhead comprises indirect expenses associated with operating a manufacturing plant that cannot be directly charged to a specific product. These costs include indirect materials, indirect labor, and other indirect costs like rent, utilities, and depreciation. Factory overhead is classified as either fixed or variable. Variance analysis involves calculating the budget or spending variance and volume or capacity variance to determine if overhead was over-applied or under-applied compared to the estimated amounts. Formulas are used to calculate variances based on actual, standard, and budgeted overhead rates and costs.
Factory overhead comprises indirect expenses associated with operating a manufacturing plant that cannot be directly charged to a specific product. These costs include indirect materials, indirect labor, and other indirect costs like rent, utilities, and depreciation. Factory overhead is classified as either fixed or variable. Variance analysis involves calculating the budget or spending variance and volume or capacity variance to determine if actual overhead was over-applied or under-applied compared to the estimated overhead rates and production levels.
Absorption (Total) costing is a method of costing where all overheads must be allocated to products. It calculates the full production cost per unit by including both direct and indirect costs. Overheads are apportioned to cost centers and production departments based on factors like floor area, assets, orders, or personnel. Overhead absorption rates are set based on planned production volumes and budgets to determine the overhead amount recovered from each unit. Differences between actual and planned overhead expenditures and production volumes can lead to over-absorption or under-absorption of overheads.
This document discusses three methods for assigning overhead costs in manufacturing: the plantwide overhead rate method, departmental overhead rate method, and activity-based costing. It provides examples to illustrate how overhead is allocated using each method. The plantwide rate method uses a single overhead rate based on direct labor hours. The departmental method uses multiple rates based on departments. Activity-based costing identifies activities causing overhead and assigns costs based on activity drivers. The document outlines the four steps to implement activity-based costing.
The document provides an overview of job-order costing for manufacturing operations. It discusses key aspects of the job-order costing process including: (1) tracing direct material and labor costs to individual jobs, (2) using a predetermined overhead rate to apply manufacturing overhead costs to jobs based on an allocation base like direct labor hours, and (3) calculating total and unit product costs for costing and decision making. The document also notes that job-order costing aims to assign all costs of production to specific jobs or cost objects but overhead allocation can sometimes lack precision.
The document discusses standard costing and variance analysis through two case studies:
Case A examines the effect of assumed standard labor levels at Harden Company. Management adopted a dual standard system using different standards for motivation and cost reporting.
Case B analyzes a $2,000 under-applied factory overhead variance at Strayer Company. The variance was likely due to unfavorable spending and idle capacity variances as production was below budgeted levels.
The document discusses traditional costing systems and activity-based costing (ABC) systems. It provides examples of activities in a manufacturing company and how overhead costs are allocated using ABC. Under ABC, costs are traced to activities and then to products using cost drivers. This provides a more accurate allocation of overhead costs compared to traditional systems that allocate overhead based only on direct labor or machine hours. The document includes an example of calculating activity cost driver rates and allocating overhead costs to different pen products using ABC for a manufacturing company.
Chapter 7: systems design: activity-based costing -- assigning overhead costs to products, plant wide overhead rate, departmental overhead rates, designing and abc system, hierarchy of activities, activity-based costing at classic brass, using activity-based costing, direct labor hours as base, computing activity rates, shifting to overhead costs, targeting process improvements, evaluation of activity-based costing, abc and service industries, cost flows in an abc system.
Similar to Solutions manual for managerial accounting 16th edition by garrison ibsn 1259307417 (20)
How to Use Serial Numbers to Track Products in Odoo 17 InventoryCeline George
Mainly lots or serial numbers are used for tracking the products. Lots are actually the codes that applied for collection of products. But serial numbers are distinct numbers allocated for a particular product. Lots and serial numbers in the products will help to manage the inventory, to trace the products that reached their expiry date. This slide will show how to use lots and serial numbers to track products in odoo 17 inventory.
Bipolar Junction Transistors and operation .pptxnitugatkal
A transistor is a type of semiconductor device that can be used to conduct and insulate electric current or voltage. A transistor basically acts as a switch and an amplifier.
Multi Language and Language Translation with the Website of Odoo 17Celine George
In this slide, we'll explore the Multi Language and Language Translation features in Odoo 17 Website. We'll show you how to easily set up and manage these powerful tools.
How to Add Collaborators to a Project in Odoo 17Celine George
Effective project management in Odoo 17 hinges on collaboration. By adding collaborators, we can assign tasks, share information, and keep everyone on the same page.
How to Integrate Facebook in Odoo 17 - Odoo 17 SlidesCeline George
Integrating Facebook with other platforms, such as business software like Odoo, serves several purposes and can offer numerous benefits depending on the specific goals of your business.
How to install python packages from PycharmCeline George
In this slide, let's discuss how to install Python packages from PyCharm. In case we do any customization in our Odoo environment, sometimes it will be necessary to install some additional Python packages. Let’s check how we can do this from PyCharm.
Plato and Aristotle's Views on Poetry by V.Jesinthal Maryjessintv
PPT on Plato and Aristotle's Views on Poetry prepared by Mrs.V.Jesinthal Mary, Dept of English and Foreign Languages(EFL),SRMIST Science and Humanities ,Ramapuram,Chennai-600089
How to Load Custom Field to POS in Odoo 17 - Odoo 17 SlidesCeline George
This slide explains how to load custom fields you've created into the Odoo 17 Point-of-Sale (POS) interface. This approach involves extending the functionalities of existing POS models (e.g., product.product) to include your custom field.
How to Use Quality Module in Odoo 17 - Odoo 17 SlidesCeline George
To improve the quality of our business we have to supervise all the operations and tasks. We can do different quality checks before the product is put to the market. We can do all these activities in a single module that is the Quality module in Odoo 17. This slide will show how to use the quality module in odoo 17.
How to Use Quality Module in Odoo 17 - Odoo 17 Slides
Solutions manual for managerial accounting 16th edition by garrison ibsn 1259307417
1. Solutions Manual for Managerial Accounting 16th Edition by
Garrison IBSN 1259307417
Full download:
http://downloadlink.org/p/solutions-manual-for-managerial-accounting-
16th-edition-by-garrison-ibsn-1259307417/
Test Bank for Managerial Accounting 16th Edition by Garrison IBSN
1259307417
Full download:
http://downloadlink.org/p/test-bank-for-managerial-accounting-16th-
edition-by-garrison-ibsn-1259307417/
Chapter 2
Job-Order Costing: Calculating Unit Product
Costs
Questions
2-1 Job-order costing is used in situations
where many different products, each with individ-
ual and unique features, are produced each pe-
riod.
2-2 In absorption costing, all manufacturing
costs, both fixed and variable, are assigned to
units of product—units are said to fully absorb
manufacturing costs. Conversely, all nonmanufac-
turing costs are treated as period costs and they
are not assigned to units of product.
2-3 Normal costing systems apply overhead
costs to jobs by multiplying a predetermined
overhead rate by the actual amount of the alloca-
tion incurred by the job.
2-4 Unit product cost is computed by taking
the total manufacturing costs assigned to a job
and dividing it by the number of units contained
in the job.
2-5 The first step is to estimate the total
amount of the allocation base (the denominator)
that will be required for next period’s estimated
level of production. The second step is to esti-
mate the total fixed manufacturing overhead cost
for the coming period and the variable manufac-
turing overhead cost per unit of the allocation
base. The third step is to use the cost formula Y
= a + bX to estimate the total manufacturing
overhead cost (the numerator) for the coming pe-
riod. The fourth step is to compute the predeter-
mined overhead rate.
2-6 The job cost sheet is used to record all
costs that are assigned to a particular job. These
costs include direct materials costs traced to the
job, direct labor costs traced to the job, and man-
ufacturing overhead costs applied to the job.
58. Exercise 2A-2 (45 minutes)
1. The unit product costs under the company's traditional costing system
would be computed as follows:
Rascon Parcel Total
Number of units produced (a) ...................... 20,000 80,000
Direct labor-hours per unit (b)...................... 0.40 0.20
Total direct labor-hours (a) × (b) ................. 8,000 16,000 24,000
Total manufacturing overhead (a) ................ $576,000
Total direct labor-hours (b).......................... 24,000 DLHs
Predetermined overhead rate (a) ÷ (b)......... $24.00 per DLH
Direct materials...........................................
Rascon
$13.00
Parcel
$22.00
Direct labor.................................................
Manufacturing overhead applied:
6.00 3.00
0.40 DLH per unit × $24.00 per DLH.......... 9.60
0.20 DLH per unit × $24.00 per DLH.......... 4.80
Unit product cost......................................... $28.60 $29.80
59. Exercise 2A-2 (continued)
2. The unit product costs using activity-based absorption costing can be computed as follows:
Estimated
Activity Cost Pool
Overhead
Cost*
(b)
Expected Activity
(a) ÷ (b)
Activity Rate
Labor related ........... $288,000 24,000 direct labor-hours $12.00 per direct labor-hour
Engineering design... $288,000 6,000 engineering-hours $48.00 per engineering-hour
$576,000
*The total estimated manufacturing overhead cost of $576,000 is split evenly between the two activ-
ity cost pools.
Manufacturing overhead is assigned to the two products as follows:
Rascon:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Labor related ......... $12 per DLH 8,000 DLHs $ 96,000
Engineering design. $48 per engineering-hour 3,000 engineering-hours 144,000
Total...................... $240,000
Parcel:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Labor related ......... $12 per DLH 16,000 DLHs $192,000
Engineering design. $48 per engineering-hour 3,000 engineering-hours 144,000
Total...................... $336,000
60. Exercise 2A-2 (continued)
The unit product costs combine direct materials, direct labor, and over-
head costs:
Rascon Parcel
Direct materials............................................. $13.00 $22.00
Direct labor................................................... 6.00 3.00
Manufacturing overhead ($240,000 ÷ 20,000
units; $336,000 ÷ 80,000 units) .................. 12.00 4.20
Unit product cost........................................... $31.00 $29.20
3. The unit product cost of the high-volume product, Parcel, declines under
the activity-based approach, whereas the unit product cost of the low-
volume product, Rascon, increases. This occurs because half of the
overhead is applied on the basis of engineering design hours instead of
direct labor-hours. When the overhead was applied on the basis of di-
rect labor-hours, most of the overhead was applied to the high-volume
product. However, when the overhead is applied on the basis of engi-
neering-hours, more of the overhead cost is shifted over to the low-vol-
ume product. Engineering-hours is a product-level activity, so the higher
the volume, the lower the unit cost and the lower the volume, the
higher the unit cost.
62. Exercise 2A-3 (45 minutes)
1. The predetermined overhead rate is computed as follows:
Predetermined =
$325,000
= $6.50 per DLH
overhead rate 50,000 DLHs
The unit product costs under the company’s traditional costing system
are computed as follows:
Deluxe Stand-
ard
Direct materials....................................................... $72.00 $53.00
Direct labor............................................................. 19.00 15.20
Manufacturing overhead (1.0 DLH × $6.50 per DLH;
0.8 DLH × $6.50 per DLH).................................... 6.50 5.20
Unit product cost..................................................... $97.50 $73.40
63. Exercise 2A-3 (continued)
2. The activity rates are computed as follows:
(a)
Estimated (b)
Overhead Total (a) ÷ (b)
Activity Cost Pool
Supporting direct labor...
Cost
$200,000
Expected Activity
50,000 DLHs
Activity Rate
$4 per DLH
Batch setups ................. $75,000 300 setups $250 per setup
Safety testing ................ $50,000 100 tests $500 per test
Manufacturing overhead is assigned to the two products as follows:
Deluxe Product:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Supporting direct labor .......... $4 per DLH 10,000 DLHs $ 40,000
Batch setups ......................... $250 per setup 200 setups 50,000
Safety testing........................ $500 per test 30 tests 15,000
Total..................................... $105,000
Standard Product:
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Supporting direct labor .......... $4 per DLH 40,000 DLHs $160,000
Batch setups ......................... $250 per setup 100 setups 25,000
Safety testing........................ $500 per test 70 tests 35,000
Total..................................... $220,000
64. Exercise 2A-3 (continued)
Activity-based absorption costing unit product costs are computed as
follows:
Deluxe Standard
Direct materials .................................................. $ 72.00 $53.00
Direct labor ........................................................ 19.00 15.20
Manufacturing overhead ($105,000 ÷ 10,000
units; $220,000 ÷ 50,000 units) ....................... 10.50 4.40
Unit product cost ................................................ $101.50 $72.60
65. Problem 2A-4 (60 minutes)
1. a. When direct labor-hours are used to apply overhead cost to products,
the company’s predetermined overhead rate would be:
Predetermined =
Manufacturing overhead cost
overhead rate Direct labor-hours
=
$1,800,000
36,000DLHs
= $50 per DLH
b. Model
Direct materials..........................................
X200
$ 72
X99
$ 50
Direct labor:
$20 per hour × 1.8 hours and 0.9 hours ... 36 18
Manufacturing overhead:
$50 per hour × 1.8 hours and 0.9 hours ... 90 45
Total unit product cost................................ $198 $113
2. a. Predetermined overhead rates for the activity cost pools:
Activity Cost Pool
(a)
Estimated
Total Cost
(b)
Estimated
Total Activity
(a) ÷ (b)
Activity Rate
Machine setups...... $360,000 150 setups $2,400 per setup
Special processing . $180,000 12,000 MHs $15 per MH
General factory...... $1,260,000 36,000 DLHs $35 per DLH
66. Problem 2A-4 (continued)
The overhead applied to each product can be determined as follows:
Model X200
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Machine setups.................................... $2,400 per setup 50 setups $120,000
Special processing................................ $15 per MH 12,000 MHs 180,000
General factory .................................. $35 per DLH 9,000 DLHs 315,000
Total manufacturing overhead cost (a) $615,000
Number of units produced (b)............. 5,000
Overhead cost per unit (a) ÷ (b)......... $123.00
Model X99
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Machine setups.................................... $2,400 per setup 100 setups $ 240,000
Special processing................................ $15 per MH 0 MHs 0
General factory .................................. $35 per DLH 27,000 DLHs 945,000
Total manufacturing overhead cost (a) $1,185,000
Number of units produced (b)............. 30,000
Overhead cost per unit (a) ÷ (b)......... $39.50
67. Problem 2A-4 (continued)
b. The unit product cost of each model under the activity-based ap-
proach would be computed as follows:
Model
X200 X99
Direct materials ..................................... $ 72.00 $50.00
Direct labor:
$20 per DLH × 1.8 DLHs, 0.9 DLHs...... 36.00 18.00
Manufacturing overhead (above) ............ 123.00 39.50
Total unit product cost........................... $231.00 $107.50
Comparing these unit cost figures with the unit costs in Part 1(b), we
find that the unit product cost for Model X200 has increased from
$198 to $231, and the unit product cost for Model X99 has decreased
from $113 to $107.50.
3. It is especially important to note that, even under activity-based costing,
70% of the company’s overhead costs continue to be applied to prod-
ucts on the basis of direct labor-hours:
Machine setups (number of setups)... $ 360,000 20%
Special processing (machine-hours)... 180,000 10
General factory (direct labor-hours)... 1,260,000 70
Total overhead cost.......................... $1,800,000 100%
Thus, the shift in overhead cost from the high-volume product (Model
X99) to the low-volume product (Model X200) occurred as a result of re-
assigning only 30% (=20% + 10%) of the company’s overhead costs.
The increase in unit product cost for Model X200 can be explained as
follows: First, where possible, overhead costs have been traced to the
products rather than being lumped together and spread uniformly over
production. Therefore, the special processing costs, which are traceable
to Model X200, have all been assigned to Model X200 and none as-
signed to Model X99 under the activity-based approach. It is common in
industry to have some products that require special handling or special
processing of some type. This is especially true in modern factories that
produce a variety of products. Activity-based costing provides a vehicle
for assigning these costs to the appropriate products.
68. Problem 2A-4 (continued)
Second, the costs associated with the batch-level activity (machine set-
ups) have also been assigned to the specific products to which they re-
late. These costs have been assigned according to the number of setups
completed for each product. However, because a batch-level activity is
involved, another factor affecting unit costs comes into play. That factor
is batch size. Some products are produced in large batches and some
are produced in small batches. The smaller the batch, the higher the per
unit cost of the batch activity. In the case at hand, the data can be ana-
lyzed as follows:
Model X200:
Cost to complete one setup (see requirement 2a)........ $2,400 (a)
Number of units processed per setup
(5,000 units per setup ÷ 50 setups = 100 units)....... 100 units (b)
Setup cost per unit (a) ÷ (b)...................................... $24
Model X99:
Cost to complete one setup (see requirement 2a)........ $2,400 (a)
Number of units processed per setup
(30,000 units per setup ÷ 100 setups = 300 units) ... 300 units (b)
Setup cost per unit (a) ÷ (b)...................................... $8
Thus, the cost per unit for setups is three times as great for Model
X200, the low-volume product, as it is for Model X99, the high-volume
product. Such differences in cost are obscured when direct labor-hours
(or any other volume measure) is used as a basis for applying overhead
cost to products.
In sum, overhead cost has shifted from the high-volume product to the
low-volume product as a result of more appropriately assigning some
costs to the products on the basis of the activities involved, rather than
on the basis of direct labor-hours.
69. Problem 2A-5 (60 minutes)
1. The company’s estimated direct labor-hours can be computed as fol-
lows:
Deluxe model: 5,000 units × 2 DLHs per unit .... 10,000 DLHs
Regular model: 40,000 units × 1 DLH per unit... 40,000 DLHs
Total direct labor hours .................................... 50,000 DLHs
Using just direct labor-hours as the base, the predetermined overhead
rate would be:
Estimated overhead cost
=
$900,000
= $18 per DLH
Estimated direct labor-hours 50,000DLHs
The unit product cost of each model using the company’s traditional
costing system would be:
Direct materials......................
Deluxe
$ 40
Regular
$25
Direct labor............................
Manufacturing overhead:
$18 per DLH × 2 DLHs.........
38
36
19
$18 per DLH × 1 DLH .......... 18
Total unit product cost ........... $114 $62
2. Predetermined overhead rates are computed below:
(a)
Activity Cost Pool
Estimated
Overhead
Cost
(b)
Expected
Activity
(a) ÷ (b)
Activity Rate
Purchasing................ $204,000 600 purchase or- $340 per purchase
ders order
Processing................ $182,000 35,000 machine- $5.20 per
hours machine-hour
Scrap/rework............ $379,000 2,000 orders $189.50 per order
Shipping................... $135,000 900 shipments $150 per shipment
71. Problem 2A-5 (continued)
3. a. The overhead applied to each product can be determined as follows:
The Deluxe Model
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Purchasing................................. $340 per PO 200 POs $ 68,000
Processing ................................. $5.20 per MH 20,000 MHs 104,000
Scrap/rework............................. $189.50 per order 1,000 tests 189,500
Shipping.................................... $150 per shipment 250 shipments 37,500
Total overhead cost (a) .............. $399,000
Number of units produced (b)..... 5,000
Overhead cost per unit (a) ÷ (b). $79.80
The Regular Model
Activity Cost Pool
(a)
Activity Rate
(b)
Activity
(a) × (b)
ABC Cost
Purchasing................................. $340 per PO 400 POs $136,000
Processing ................................. $5.20 per MH 15,000 MHs 78,000
Scrap/rework............................. $189.50 per order 1,000 orders 189,500
Shipping.................................... $150 per shipment 650 shipments 97,500
Total overhead cost (a) .............. $501,000
Number of units produced (b)..... 40,000
Overhead cost per unit (a) ÷ (b). $12.53
72. Problem 2A-5 (continued)
b. Using activity-based absorption costing, the unit product cost of each
model would be:
Deluxe Regular
Direct materials.......................... $ 40.00 $25.00
Direct labor................................ 38.00 19.00
Manufacturing overhead (above). 79.80 12.53
Total unit product cost................ $157.80 $56.53
4. Unit costs appear to be distorted as a result of using direct labor-hours
as the base for assigning overhead cost to products. Although the
deluxe model requires twice as much labor time as the regular model, it
still is not being assigned enough overhead cost, as shown in the analy-
sis in part 3(a).
When the company’s overhead costs are analyzed on an activities basis,
it appears that the deluxe model is more expensive to manufacture than
the company realizes. Note that the deluxe model accounts for a major-
ity of the machine-hours worked, even though it accounts for only 20%
(= 10,000 DLHs ÷ 50,000 DLHs) of the company’s direct labor-hours.
Also, it requires just as many scrap/rework orders as the regular model,
and scrap/rework orders are very costly to the company.
When activity-based absorption costing is used and the company’s
transactions are analyzed by product, the overhead cost increases for
the deluxe model from $36.00 per unit to $79.80 per unit. This suggests
that less than half the overhead cost is being assigned to the deluxe
model that ought to be assigned, and unit costs for the deluxe model
are understated. If these costs are being used as a basis for pricing,
then the selling price for the deluxe model may be too low. This may be
the reason why profits have been steadily declining over the last several
years. It may also be the reason why sales of the deluxe model have
been increasing rapidly.
74. Activity Cost
Estimated
Overhead
(b)
Expected (a) ÷ (b)
Pools
Purchasing ...........
Costs
$560,000
Activity
2,000 orders
Activity Rate
$280 per order
Material handling .. $193,000 1,000 setups $193 per setup
Quality control...... $90,000 500 batches $180 per batch
Roasting............... $1,045,000 95,000 hours $11 per hour
Blending............... $192,000 32,000 hours $6 per hour
Packaging ............ $120,000 24,000 hours $5 per hour
Case 2A-6 (90 minutes)
1. a. The predetermined overhead rate would be computed as follows:
Expected manufacturing overhead cost
=
$2,200,000
Estimated direct labor-hours 50,000 DLHs
= $44 per DLH
b. The unit product cost per pound, using the company’s present costing
system, would be:
Kenya Viet
Dark Select
Direct materials (given) ......... $4.50 $2.90
Direct labor (given) ............... 0.34 0.34
Manufacturing overhead:
0.02 DLH × $44 per DLH..... 0.88 0.88
Total unit product cost........... $5.72 $4.12
2. a. Overhead rates for each activity cost pool:
(a)
76. Activity Cost Pool
Purchasing ............... $280
Activity Rate
per order
Expected Activity
4 orders
Amount
$ 1,120
Material handling ...... $193 per setup 32 setups 6,176
Quality control.......... $180 per batch 16 batches 2,880
Roasting................... $11 per roasting hour 1,200 roasting hours 13,200
Blending................... $6 per blending hour 400 blending hours 2,400
Packaging................. $5 per packaging hour 240 packaging hours 1,200
Total........................ $26,976
Viet Select
Activity Cost Pool
Purchasing ............... $280
Activity Rate
per order
Expected Activity
8 orders
Amount
$2,240
Material handling ...... $193 per setup 16 setups 3,088
Quality control.......... $180 per batch 8 batches 1,440
Roasting................... $11 per roasting hour 60 roasting hours 660
Blending................... $6 per blending hour 20 blending hours 120
Packaging................. $5 per packaging hour 12 packaging hours 60
Total........................ $7,608
Case 2A-6 (continued)
The overhead applied to each product can be determined as follows:
Kenya Dark
77. b. According to the activity-based absorption costing system, the manu-
facturing overhead cost per pound is:
Kenya Viet
Dark Select
Total overhead cost assigned (above) (a) ... $26,976 $7,608
Number of pounds manufactured (b).......... 80,000 4,000
Cost per pound (a) ÷ (b) ........................... $0.34 $1.90
c. The unit product costs according to the activity-based absorption
costing system are:
Kenya Viet
Dark Select
Direct materials (given) ............ $4.50 $2.90
Direct labor (given) .................. 0.34 0.34
Manufacturing overhead ........... 0.34 1.90
Total unit product cost.............. $5.18 $5.14
3. MEMO TO THE PRESIDENT: Analysis of JSI’s data shows that several
activities other than direct labor drive the company’s manufacturing
overhead costs. These activities include purchase orders issued, number
of setups for material processing, and number of batches processed.
The company’s present costing system, which relies on direct labor time
as the sole basis for assigning overhead cost to products, significantly
undercosts low-volume products, such as the Viet Select coffee, and sig-
nificantly overcosts high-volume products, such as our Kenya Dark cof-
fee.
An implication of the activity-based approach is that our low-volume
products may not be covering the costs of the manufacturing resources
they use. For example, Viet Select coffee is currently priced at $5.15 per
pound ($4.12 plus 25% markup), which is only one cent higher than its
activity-based cost of $5.14 per pound. Under our present costing and
pricing system, our high-volume products, such as our Kenya Dark cof-
fee, may be subsidizing our low-volume products. Some adjustments in
prices may be required.
79. Case 2A-6 (continued)
ALTERNATIVE SOLUTION:
Most students will compute the manufacturing overhead cost per pound
of the two coffees as shown above. However, the per pound cost can
also be computed as shown below. This alternative approach provides
additional insight into the data and facilitates emphasis of some points
made in the chapter.
Kenya Dark Viet Select
Total
Per Pound
(÷ 80,000) Total
Per Pound
(÷ 4,000)
Purchasing........... $ 1,120 $0.014 $2,240 $0.560
Material handling.. 6,176 0.077 3,088 0.772
Quality control ..... 2,880 0.036 1,440 0.360
Roasting .............. 13,200 0.165 660 0.165
Blending .............. 2,400 0.030 120 0.030
Packaging............ 1,200 0.015 60 0.015
Total ................... $26,976 $0.337 $7,608 $1.902
Note particularly how batch size impacts unit cost data. For example, the
cost to the company to process a purchase order is $280, regardless of
how many pounds of coffee are contained in the order. Twenty thousand
pounds of the Kenya Dark coffee are purchased per order (with four orders
per year), and just 500 pounds of the Viet Select coffee are purchased per
order (with eight orders per year). Thus, the purchase order cost per
pound for the Kenya Dark coffee is just 1.4 cents, whereas the purchase
order cost per pound for the Viet Select coffee is 40 times as much, or 56
cents. As stated in the text, this is one reason why unit costs of low-vol-
ume products, such as the Viet Select coffee, increase so dramatically
when activity-based costing is used.
89. 5. The “hat trick” is a bit harder to perform under the new method. Under
the old method, the target net operating income can be attained by pro-
ducing an additional 8,000 units. Under the new method, the production
would have to be increased by 12,500 units. Again, this is a conse-
quence of the difference in predetermined overhead rates. The drop in
sales has had a more dramatic effect on net operating income under the
new method as noted above in part (4). In addition, because the prede-
termined overhead rate is lower under the new method, producing ex-
cess inventories has less of an effect per unit on net operating income
than under the traditional method and hence more excess production is
required.
6. One can argue that whether the “hat trick” is unethical depends on the
level of sophistication of the owners of the company and others who
read the financial statements. If they understand the effects of excess
production on net operating income and are not misled, it can be ar-
gued that the hat trick is not unethical. However, if that were the case,
there does not seem to be any reason to use the hat trick. Why would
the owners want to tie up working capital in inventories just to artifi-
cially attain a target net operating income for the period? And increasing
the rate of production toward the end of the year is likely to increase
overhead costs due to overtime and other costs. Building up inventories
all at once is very likely to be much more expensive than increasing the
rate of production uniformly throughout the year. In this case, we as-
sumed that there would not be an increase in overhead costs due to the
additional production, but that is likely not to be true.
In our opinion, the hat trick is unethical unless there is a good reason
for increasing production other than to artificially boost the current pe-
riod’s net operating income. It is certainly unethical if the purpose is to
fool users of financial reports such as owners and creditors or if the pur-
pose is to meet targets so that bonuses will be paid to top managers.