...Budgeting and Resource Allocation Strategy execution is a process that helps guide the company as they grow and change. The first step is to define the strategy. The second step is to make a plan for the business and where it is going according to the strategy. The third step is to get the company onboard with the strategy. It is important that everyone in the organization understand where the company is going. The next step is to plan how the company will execute operations. At this point it is important for the company to start to watch how the strategy is working. (Thompson, A. et al 2012). Finally, the company must test whether it is working or not. In order to execute the budget and consider whether resources have been allocated correctly the company must follow these steps and test. It is much like a scientific experiment, you must follow the formula, follow the hypothesis, and determine the outcome. The first thing a company must consider is how much capital they have to implement a new strategy. If they don’t have enough set aside to move the new strategy along it will lag and may not become productive. If they funnel to much capital into the new strategy and away from existing ventures existing sales may suffer.. Depending how much a company decides to change their strategy can have an effect on the budget. The larger the change, the more the budget must change. This may mean the budget gets shifted from one department to another rather than the budget growing...
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...overhead costs by multiplying their cost drivers. Not to mention the fact that they have incorporated a largely automated system into their product line, which we know calls for an ABC system. The main reason to move to ABC though, I’d say, would be because it will allow management to make better decisions and move away from the “cash machine” and “lemonade stand” metaphor simply because overhead costs will be allocated in such a way that corresponds to either framed or unframed prints instead of considering the same overhead for both products. By doing so managers will be able to price the prints competitively while still maintaining a profitable margin. An activity-based costing system may be appropriate for Wall Décor, when overhead allocation based job-order costing provides product cost distortion. Wall Décor should change its costing system for selling its high volume produced products whereas low-volume produced products have good profit. 2. The activity-based overhead rates: | Activity | Estimated Overhead | Expected use of Cost Drivers | Activity-Based Overhead Rates | | | | | | |Picking prints |$36,000 |102,000 prints |$0.30 per print | | | | | | |Inventory selection and management |$91,700 |131,000 components |$0.70 per component | | | | | |...
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...The Impact of Healthcare reforms on Hospital Costing Systems The costing systems implemented in hospitals has been the same for a while now. It’s worked and has been easily allocated based off of averages from previous years. Now as times change so will the costing systems for hospitals in order to get the most beneficial cost-reductions to them as well as improve on efficiency. This article looks into how accountants for hospitals can redesign, reposition, and re-implement costing ideas to allocate on a per-unit of care basis (Selivanoff, 2011). We’ll take a look at two ways for accountants to prepare for these reforms and five steps to adjusting the costing systems in place. In the hospital costing system accountants want to measure costs during a patients stay to determine how much resources are being used. The one way accounting departments are improving efficiency is deter away from the average costs for their resources. Rather than allocating a hundred dollars for this test and a hundred dollars for this procedure they want to implement an “on-the-fly” care plan. Which measures truly how much a patient is costing them to get the optimized cost-reduced methods. It allows them to take a deeper look into inventory and assign costs to each resource so that patients really pay for what they used and hospitals have a clear costing method that’s equal for every person. This method is effective but is highly stressful for the accounting department to record at first...
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...Q 1: The overhead allocation rate using the 1987 model year budget was 437%, while the official overhead allocation rate used in the 1987 model year strategy study was 435%. The difference was because the official overhead allocation rate was based on actual labor costs and overhead expenses, when the budget overhead allocation rate was calculated on budget labor costs and overhead expenses. Q2: There was a slight change in overhead allocation rate from 1987 (437%) to 1988 (434%). However, the rate rose significantly at 1989 (577%), and went down a little at 1990 (563%). The main reason for the increase was because at the end of the 1988 model year, oil pans and muffler-exhaust systems were outsourced. Direct labor costs for those two components then fell to 0 at 1989 and 1990, since the reduced labor were transferred and paid by the union, and this was no longer a plant burden cost. Therefore, direct labor went down 46% from 1988 to 1989, when total budget overhead just dropped 28%. Q3: Q4: The product costs reported by the cost system were not appropriate for use in the strategic analysis. This cost accounting system used a single cost pool, and 435% of direct labor was used to allocate total overhead. However, direct labor was not compatible with the characteristics of certain overhead. For instance, overhead 8000 was depreciation, and depreciation should have been allocated to machine hours rather than labor cost. What’s more, setup overhead 11000 was not closely related...
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...000 The allocations are driven by the dollar value of the checks processed. c) (i) Total indirect cost proportion for Retail Line (Allocation amount/Est. MOH) $285,000/$2,850,000= 10% (ii) Total indirect cost proportion for Business line $2,565,000/$2,850,000= 90% The original system assumed that indirect costs are incurred in direct proportion to the dollar value of the checks processed. This allocation is approximately accurate only if the indirect costs in Exhibit B are incurred in direct proportion to the dollar value of the checks each customer line writes. d) (i) Annual indirect cost per Retail account. (Allocated indirect costs/number of accounts) $285,000/150,000= $1.90 per account (ii) Annual indirect cost per Business account $2,565,000/50,000= $51.30 per account e) (i) Contribution to profit per Retail account (Revenue per account minus cost per account) $10.00 - $1.90= $8.10 (ii) Contribution to profit per Business account $40.00 - $51.30= ($11.30) This suggests Buckeye National Bank should pursue a strategy that increases the retail-customer base because the original cost system shows retail customers are profitable, but business customers are not. 2. One sign that the cost allocation system is broken is the amount of allocated cost per business account. When you have such few accounts but allocate based on the total dollar value of checks processed, you over allocate for the business line. The old cost system is a single-allocation-based...
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...services. (Gapenski, pg. 27) The outpatient services section of the hospital is used by the Outpatient Clinic, as well as the Dialysis Center. The Outpatient Clinic, which makes up about 80 percent of the outpatient services section, has recently grown in volume and has created a need for 25 percent more space than it currently has. Moving the Dialysis Center to a new building was decide to allow expansion of the Outpatient Clinic. A change and focus on the allocation of costs has some department heads angry and claiming of unfairness; and some are less likely to receive their end-of-year bonus. Rick Simmons, CFO, is completely in charge of how indirect costs are allocated, but the only restriction was they must be done within outpatient services. Before leaving Big Bend, Rick drafted an indirect cost allocation that had concerned the Director of the Dialysis Center, John Van Pelt. His concerns must be taken into consideration as well as fairness and promoting overall cost savings for the organization while a new allocation is created and Executive Summary The Dialysis Center at Big Bend Medical Center performs hemodialysis and peritoneal dialysis, which are alternative processes that remove wastes and excess water from the blood for patients with end-stage renal (kidney) disease. In hemodialysis, blood is pumped from the patient’s arm through a shunt into a dialysis machine, which uses a cleansing solution and an artificial membrane to perform the functions of a healthy kidney...
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...Loan The Tootsie Roll Industries, Inc. has chosen to allocate the funds from the loan to critical departments that will contribute to the growth of the company. The loan will permit Tootsie Roll to acquire new updated equipment for better production such as robotics to increase productivity. The allocation of these funds will open up research, and development, to produce healthier and cheaper ingredients for products. However, acquiring new robotic production machines or equipment will require a decrease in manpower, wages, and salaries. Approval of the loan will positively affect Tootsie Roll by the way products are manufactured and distributed. The loan acquisition will increase the productivity of the company because of the acquisition of new assets to benefit production. Through the downturn in the economy, Tootsie Roll Industries, Inc. has adjusted product prices or package weights to offset the higher costs (Kimmel, Weygandt, & Kieso, 2011). During the first quarter of 2009, the Tootsie Roll Industries, Inc. adopted the authoritative guidance for disclosures about hedging activities derivative instruments. It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of derivative instruments, and related gains and losses (Kimmel, Weygandt, & Kieso, 2011). It also required disclosures about related credit-risk features in derivative agreements (Kimmel, Weygandt, & Kieso, 2011). Providing...
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...know calls for an ABC system. The main reason to move to ABC though, I’d say, would be because it will allow management to make better decisions and move away from the “cash machine” and “lemonade stand” metaphor simply because overhead costs will be allocated in such a way that corresponds to either framed or unframed prints instead of considering the same overhead for both products. By doing so managers will be able to price the prints competitively while still maintaining a profitable margin. An activity-based costing system may be appropriate for Wall Décor, when overhead allocation based job-order costing provides product cost distortion. Wall Décor should change its costing system for selling its high volume produced products whereas low-volume produced products have good profit. 2. The activity-based overhead rates: [pic] 3. The product costs using ABC: [pic] 4. Overhead allocation based job-order costing had been resulted the price distortion for specially unframed prints, not considering their job capacities. But in reality, when ABC system applied on...
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...overhead costs by multiplying their cost drivers. Not to mention the fact that they have incorporated a largely automated system into their product line, which we know calls for an ABC system. The main reason to move to ABC though, I’d say, would be because it will allow management to make better decisions and move away from the “cash machine” and “lemonade stand” metaphor simply because overhead costs will be allocated in such a way that corresponds to either framed or unframed prints instead of considering the same overhead for both products. By doing so managers will be able to price the prints competitively while still maintaining a profitable margin. An activity-based costing system may be appropriate for Wall Décor, when overhead allocation based job-order costing provides product cost distortion. Wall Décor...
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...Practice set for Chapters 15 and 16 1) The single-rate cost-allocation method may base the denominator choice on: A) master-budget capacity utilization B) normal capacity utilization C) practical capacity D) All of these answers are correct. 2) Benefits of the single-rate method include: A) the low cost of implementation B) fixed costs that are transformed into variable costs for user decision making C) signals regarding how variable and fixed costs behave differently D) information that leads to outsourcing decisions that benefit the organization as a whole 3) Benefits of the dual-rate method include: A) variable costs that are transformed into fixed costs for user decision making B) the low cost of implementation C) avoidance of expensive analysis for categorizing costs as either fixed or variable D) information that leads to outsourcing decisions that benefit the organization as a whole 4)The advantage of using practical capacity to allocate costs: A) is that it allows a downward demand spiral to develop B) is that it focuses management's attention on managing unused capacity C) is that budgets are much easier to develop D) Either A or B are correct. Answer the following questions using the information below: The Bonawitz Corporation has a central copying facility. The copying facility has only two users, the Marketing Department and the Operations Department. The following data apply to the coming budget...
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...Marking Scheme(Note: Breakdown of marks must be shown for each sub-question) | Allocation of Marks | 1. Who are the key players in this case? What are their roles?The key players are Mary May and Mr. Edwards.Mary May was a project manager who reported directly to Mr Edwards. As a project manager, Mary was responsible to oversee project implementation as well as the project’s pricing and costing.Mr Edwards was the Water Purification Group Vice President. He was responsible to all projects under the group and therefore need to ensure the profitability of the group. 2. What is the main issue faced by Mary? What decision Mary need to make?Project ORG7, which is under Mary’s management showed cost overruns. The actual costs of completing the project were higher than the budgeted, causing significant losses to the group. Such losses would cause Mary’s bonus and also the groups’ overall performance.Mary is in the position to determine cost allocation for all projects under her management. Therefore she has the opportunity to intentionally allocate the extra costs to other projects under her management. 3. What are Mary May’s alternatives? Please provide supporting calculation to each alternative.Alternative 1: allocate the RM2,000,000 to Project ORG7Profit before tax = Total Revenue – Total costs= RM7,000,000 – RM8,200,000= - RM1,2000,000 or 17.1% lossesAlternative 2: allocated the RM2,000,000 to another projectProfit before tax = Total Revenue – Total costs= RM7,000,000 –...
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...things he did was to put pressure on his accountants to reallocate some of the company’s fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable, net income. Blake felt that this reallocation would shine a favorable light on him in front of the board of directors because it meant that the electronics and fiber optics divisions would look like they were improving. Given that these are "businesses of the future," he believed that the stock market would react favorably to these increases, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of the fixed costs, the profits of the electronics and fiber optics divisions would not have improved. Now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Peters their whole lives, would lose their jobs. 1. If a division is reporting losses, does that necessarily mean that it should be closed? 2. Was the reallocation of fixed costs across divisions unethical? 3. What should Blake do?” (Weygandt, Kimmel, & Kieso, 2012). Solutions Guide: Please reword the answers to essay type parts so as to guarantee that your answer is an original. Do not submit as...
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...Advantages Makes cost allocation more fair Recognizes it’s true quality Could give a break because they are using the Same equipment and staff Dialysis Center is already using the same equipment and personnel Is there a better way? In order to offset the large facility costs; the Dialysis center should be able to claim revenues on direct utilization of pharmaceutical supplies; increasing their bottom line and potentially allowing them to remain financially stable through the facility transition. Is it “fair” for the Dialysis Center to suffer in profitability, and hence for the department head to possibly lose his bonus, just because the Outpatient Clinic needs additional space? Incentives Performance improvements Performance measures Disadvantages Costs more per square foot for the dialysis center For the Dialysis Center to bear the true costs, they forfeit the chance of generating true net profit. There will be more incentive to focus on outpatient services than Dialysis patients Other departments will find it less appealing to relocate if they know their profitability or contributions to the Hospital will decline severely when incurring true facility costs. How is pharmacy revenue handled? Pharmacy supplies used for dialysis cost the pharmacy $400,000 They profit $400,000 on drugs used Dialysis center books $800,000 in annual revenue They are charged $800,000 for the drugs they use Do you support the new allocation scheme? We agree with...
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...Greetings Inc. Activity Based Costing Analysis Reasons for ABC An activity-based costing system may be appropriate for Wall Décor, when traditional overhead allocation based job-order costing system provides product line cost bias. For example, Greetings. INC has added a new product line, Wall Décor. However, they have noticeably raised their overhead costs by increasing their cost drivers. In this circumstance, Wall Décor should amend its costing system so that overhead costs will be allocated in such a way that parallels to either frame or unframed prints instead of taking into consideration the same overhead for both products. ABC Overhead Rates Activity / Est. Overhead / Expected use of Cost Drivers / Activity-Based Overhead Rates Picking prints $30,600 /102,000 prints /$0.30 per print Inventory selection and management $91,700 /131,000 comp. /$0.70 per comp. Web-site optimization: Unframed $25,800 /100,000 prints /$0.26 per print Framed $103,200 /25,000 prints /$4.13 per print ABC Product Costs Lance Armstrong (unframed) Activity Rate/Usage/Overhead Allocated Picking Prints 0.30/80,000/$24,000 Inventory Selection and Management 0.70/ 80,000 /$56,000 Website Optimization- Unframed 0.26 /80,000 /20,640 Website Optimization- framed $4.13 Framing and Matting costs $2.10 Total Overhead $100,640 Total Prints ...
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...Johnson Beverage Inc by keyson studymode.com Robert KennedyCollege Financial Management Number of the assignment: Final Assessment Name of the assignment: Johnson Beverage Inc Date: November 26th , 2009 Professor: David Duffill Table of contents - List of Exhibit Description Page Executive summary 1 Main report : Detailed problem analysis 2 - 4 References / Bibliography 5 Executive summary Johnson Beverage, Inc (JBI) owned and presided by Jack Johnson is a beverages distributer that serviced last year about 20 customers among which are four main local retailers: Saver Superstore, Oscar’s OddLots, Midwellen Supermarket and Downtown Retail. The company had been in business for two decades and had grown steadily over the past 10 to 20 years to secure a large market share in the local area. JBI distributes principally bottled sports drinks provided by small specialty beverage companies. The company’s discounts policy depends on customers and is based on a number of commercial factors. One of JBI’s best and most loyal customers for years, Saver Superstore, had been approached by a competitor and may want to negotiate a lower price for its product purchases. During a meeting held to address the situation Johnson’s accountant Jim Thomas presented a compiled report on customers profitability and profit margin where customer service costs are allocated to customers as a percentage of revenue. This analysis brought Johnson...
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