Bridgton Industries Case Study Essay

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

Shaving 5% off the estimated direct labor-hours in the predetermined overhead rate will result in an artificially high overhead rate. The artificially high predetermined overhead rate is likely to result in overapplied overhead for the year. The cumulative effect of overapplying the overhead throughout the year is all recognized in December when the balance in the Manufacturing Overhead account is closed out to Cost of Goods Sold. If the balance were closed out every month or every quarter, this effect would be

2. Considering your answer to item 1, the first three exhibits, and related introductory discussion, is it likely that the accounting system may distort product profit significantly? Why? (Ignore general, selling, and admin expense.)

Actual costing is rarely used because managers can’t wait until the end of the year to obtain product costs. Information about product costs is needed as the year goes for planning, control, and decision making.

Activity-based costing (ABC) methodology is an instrument designed to provide accountants and managers with valuable costing information that will allow them to make sound strategic decisions. It is used as a secondary methodology rather than a replacement for the company’s primarily costing system. The ABC methodology identifies activities in an organization and for each activity it assigns a cost. The cost reflects the actual resource consumption by each activity that has been identified.

Carol is a single mom. She is living with her boyfriend. Her boyfriend is the father of all of the children with the exception of the first child. As her pastor I have spoken to her about her current lifestyle and I have recommended that she contact the crisis pregnancy center. She has told me that she does not require that type of support because she has a large amount of family support. I doubt her support is as much as she claims. She has recently become pregnant with child number four. The boyfriend attempted to talk her into having an abortion with child number three. She refused. I believe Carol is a Christian even though her current lifestyle does not reflect a Christian life.

1. What is the competitive situation faced by Wilkerson? The critical product in term of market competition is the pumps of Wilkerson Company. The pumps are Wilkersons major product line with a production of about 12,500 units per month. Pumps currently have the lowest gross margin among all products, because competitors had been reducing prices on pumps and Wilkerson adopted its prices in order to remain competitive and to maintain the volume. 2. Given some apparent problems with Wilkersons cost system, should executives abandon overhead assignment to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Our conclusion is, that they should not adopt

An organization costing system is a system that helps the management with the strategy planning while the system plays an important role in providing accurate cost information about the products and customers (Curtin, 2006). UPS utilizes the Activity-Based Costing (ABC) system. ABC assumes that activities cause costs and that cost objects create the demand for activities (Marx,

with a number of strategic issues facing a capital-intensive, mature industry. Their product costing system was

Depending on the market structure, bene®ciaries of this cost reduction may be the producing ®rm

We recommend lowering your budgeted direct labor per case rate and direct materials pounds per case. The standard costs will then be more realistic and challenging. We also recommend switching the incentive program based on percentage of sales. This will motivate employees and managers to renegotiate lower prices with supplier contracts. Instead of managers being focused on favorable variances, their goal will be to increase sales. Managers and employees will be inclined to give more accurate standard prices.

Traditional costing (absorption) allocates all costs associated related to the manu-facturing process. These costs are then allocated using the overhead absorption rate, which is calculated by dividing budgeted total activity by total budgeted activity. It should be noted that total budgeted activity depends wholly on what method of allocation as company uses. Which you would usually find to be either labour hour or machine hours. In order to gain a clear understanding of absorption costing, it is important to understand what an overhead are; since the method of allocation over-heads is what the costing system is based upon. Overheads, also known as direct costs are expenditure which cannot be ‘’economically identified with a specific saleable cost unit’. Furthermore, Overheads are important to management because they want a clear understanding of what caused costs to occur.

“Dealing with today’s competition is challenge enough, even when you have all the right information. But if you are responding to wrong information, you could well be in losing battle”( b.b. turney). These words accurately show importance of relevant information and systems which allow managers to make good decisions. One of the most important issues of the analysis of the company’s business activities is determine their indirect costs. For decades the most used cost accounting method were traditional systems- rely on volume-related measures to trace overheads to products. However, “while this approach has the advantage of simplicity, it will result in systematic miscosting, where overheads are not volume driven”(innes&Mitchell citat in

The purpose of this memo is to discuss and evaluate our traditional cost based system versus the new activity based or discrete product costing system. I am going to highlight some of the positive aspects of the new system, discuss future scope and improvements along with some deeper analysis into our unprofitable products and customers.

Cost behavior is one of the most important aspect which helps in analyzing the nature and responses of different costs. Generally the cost behavior is breakdown of costs into fixed and variable components. The cost behavior is usually analyzed with the help of CVP analysis. The cost behavior patterns are analyzed by cost-volume-profit analysis, including the calculation of a firm 's break-even point in units and sales dollars.