Ba510 Week 8 Final

By doing this the company will significantly reduce the overhead costs and will increase profitability. 6. What concerns, if any, do you have with the cost estimates you prepared in the answer to question 4? What other information or analysis would you want for better cost and profitability estimates? We need to perform more detail analysis of overhead cost to define the what cost is fixed and what cost is variable. Based on such analysis we can better estimate what is our fixed costs and how it would impact on the overall profitability if we abandon one of our product line.

because the actual full cost of the overhead is deducted, the advantage would be a

Part of ABC’s Finance Director’s justification for manipulating the financial results is that: “a win-win situation for everyone”. This section will explore the impact of ABC’s creative accounting practice to the interest of different stakeholder groups. It will also identify the winners and losers if the finance director’s proposals are carried out.

SALES BUDGET: Budgeted unit sales Selling price per unit Total Sales April 65,000 10 650,000 May 100,000 10 1,000,000 June 50,000 10 500,000

Traditional costing uses one overhead rate in light of chronicled overhead costs for the whole assembling procedure. A solitary overhead rate neglects to catch contrasts in per unit overhead costs, bringing about unnecessary planning for items with littler per unit overhead costs. Action based costing relegates overhead rates in view of particular overhead cost pools. The system then doles out the rates to the unit prerequisites of these expense pools per item. The outcome is overhead costs that mirror the contrasting overhead prerequisites for the individual item. The final result is aggregate costs that more precisely speak to contrasts in per unit overhead

Overhead is charged to production at 70% of the direct materials cost. Jobs 475, 477, and 478 have been delivered to the customer.

10.  (TCO F) Elliott Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job 1501: Direct materials used: $4,200Direct labor hours worked: 300Direct labor rate per hour: $8.00Machine hours used: 200Predetermined overhead rate per machine hour: $15.00What is the total manufacturing cost recorded on Job 1501? (Points : 7)

III. Product cost: ABC Company believes that it has an additional 5,000 machine hours available in the current facility before it would need to expand. ABC Company uses machine hours to allocate the fixed factory overhead, and units sold to allocate the fixed sales expenses. ABC Company expects that it will take twice as long to produce the expansion product as it currently takes to produce its existing product.

volume of production of individual products and level of overhead, activity-based costing allowsfinding individual relationships between volume of production and different overheads. It becomespossible due to combining overheads into cost pools and allocating these cost pools to products inproportion to selected cost drivers that reflect these individual relationships between volume of production and level of overheads.Wilkerson should pool overheads into five groups (cost pools): machine-related expenses, setuplabor cost, receiving and production control, engineering, packaging and shipment. The next step ischoosing most appropriate cost drivers that reflect the relationship between volume of productionof individual products and level of overheads. Machine hours are the most natural cost driver formachine-related expenses. Both setup and receiving, and production control activities are changedin proportion to number of production runs. Engineering cost can be allocated in proportion tohours of engineering work, whereas packaging and shipment activity is driven by the number of shipments

One will note that six of the costs to consider are incremental. By definition, incremental costs would not be incurred if the part were purchased from an outside source. If a firm does not currently have the capacity to make the part, incremental costs will include variable costs plus the full portion of fixed overhead allocable to the part 's manufacture. If the firm has excess capacity that can be used to produce the part in question, only the variable overhead caused by production of the parts are considered incremental. That is, fixed costs, under conditions of sufficient idle capacity, are not incremental and should not be considered as part of the cost to make the part.

Manufacturing overhead costs play a vital role in determining final cost of the product. Manufacturing overhead represents all the costs that the company incurs indirectly and not related to the cost of direct labor, direct materials or direct cost of machines (Donald, 2010). In short, companies are not able to trace these costs to individual items during the manufacturing process. Examples of overhead costs include factory supplies, costs emanating from compliance with local, state and federal regulations as well as certain type of equipment and machinery costs (Donald, 2010). Other manufacturing overhead costs include quality assurance

Notice, when compared with Drury 's method of using the overhead rate as a percentage of direct materials cost, the version presented here gives a radically different result. Had we applied Drury 's method, the product receiving cost per unit would have been:

g. As the new assistant controller, you will be responsible for preparing the annual management reports. The company is approaching the end of its fiscal year, and the president has called a meeting with the marketing manager, the production manager, and you. During the meeting the president informs the team that sales are down and profits look like they are going to be lower than planned. The executive team is considering expanding the company’s product lines; however, this action will require a substantial loan from the bank for capital investments. Thus, the president, who is the head of the executive team, wants to ensure that profits are at least equal to or greater than last year’s. One of the executive team members has listed the following actions that could be taken to increase profits for the current year:

8. What is the factory overhead cost allocated to Advance model, if activity-based costing is used?

The engineer of company is concerned about the recovery of overheads. The company has implemented traditional system of overheads recovery based on direct labor hour and is recovering overheads at $3,000 per labor hour. The direct labor cost is only about 5% of total cost of production. The design engineer seems to be correct in his opinion that a slight variation in direct labor hour is going to affect the cost of product in great sense. If there is mistake in estimation of direct labor by half an hour it will increase the cost by $1,500. The direct labor hour is used as driver for recovery of overhead. One hour increase will lead to increase in cost of product by $3,000. The design engineer has observed that in past years there are less direct labor hours and the overhead rate keeps going up and up. This may be due to increase in overheads. The engineer is also concerned about the estimates that swing the bids of company due to recovery of overheads on the basis of direct labor hours and it is disadvantageous to the business to the business of company. The inefficiency of labor or idle time can lead to the wrong estimation of cost of product.