...Bridgeton Assignment 1. The overhead allocation rate used in the 1987 model year strategy study at the Automotive Component & Fabrication Plant (ACF) was 435% of direct labor dollar cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers? 2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred? 3. Consider two products in the same product line: Product 1 Product 2 Expected Selling Price $62 $54 Standard Material Cost 16 27 Standard Labor Cost 6 3 Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price and material and labor cost do not change from standard. 4. Are the product costs reported by the cost system appropriate for use in the strategic analysis? 5. Assume that the selling prices, volumes, and material costs for the 1991 model year will not change for fuel tanks and doors produced by the ACF of Bridgeton Industries. Assume also that if manifolds are produced, their selling prices, volume, and material costs will not change either. a. Prepare an estimated model year budget for the ACF in 1991 (1) if no additional products are dropped. (2) if the manifold product line is dropped. Explain any additional assumptions you make in preparing...
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...o Prototypes that had been fully depreciated already → well above-average gross margins • Reader/loader units from Japan that were put through a lot of quality control → higher cost and below-average margins (8) • Based on the arithmetic calculation, the overhead rate would decrease; overhead, the numerator, would remain the same, while being spread over a larger denominator, the allocation base quantity 2. What are the causes of excess capacity at ANAGENE? How is this situation different from the causes of excess capacity at BRIDGETON INDUSTRIES? • Initial output was for R&D purposes; production volumes varied more than 100% from month to month • The anticipated cartridge production volumes keep fluctuating • Addressing new markets • At Bridgeton, the death spiral resulted from the continuous outsourcing of their products; this is evident in the changes of their overhead rates from 1988 to 1989 as there were fewer variable costs in the denominator. 3. Should Gerald Kelly even be concerned with the allocation of fixed overhead costs to the cartridges? Why not use variable contribution margin (selling price minus variable costs) for decision making and reporting to the board of directors and analysts? • Selling price of $150 • Reserve capacity • Bad for long-term decisions as the fixed costs need to be covered to make profit • Economic and behavioral arguments...
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...DESCRIPTION: As a historied plant that was developed by several industry uses, ACF ultimately become an original plant site of Bridgeton Industries. The whole production of ACF was sold to the Big-Three automobile manufacturers, major competitors were the local&foreign suppliers and intracompany plants. Production processes of six major products (as fuel tanks, manifolds, etc.) were diverse from each other. ACF was using the relatively old cost system of ‘one plant-wide overhead pool’, in which the overhead was allocated on Direct Labor base. PROBLEMS AND ISSUES: Due to the competition (e.g. foreign competition) in all lines grows fiercely, the competitive environment was getting tough for ACF. It led to a series of cutbacks, layoffs and etc. In 1987, ACF consulted a firm on classifying their products in three classes with four criteria. This resulted in the ACF outsourced the Class III products. Though the act aimed to a better products performance, refer to Exhibit 2, the overhead rate increased from 437% to 563% during 1987-1990, in particular after 1988(model year of outsourcing). Unlike labor cost, certain fixed costs associated with the outsourced products still remain, these led to an increase of overhead allocation rate on the products in hand. Despite of the measures in improvement (like increase uptime to narrow the gap with the world-class Japanese), Manifolds ultimately downgraded from Class II to III and thereby candidates to be outsourced. The facing problem...
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...AMIS 4310 Topics/Case Descriptions Measuring Product Costs Case: Seligram, Inc.: Electronic Testing Operations Case Description: Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost centers and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems. In addition, the case demonstrates how cost systems can induce subtle and not so subtle shifts in the strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing. The firm has entered the death spiral...
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...AMIS 4310 Topics/Case Descriptions Measuring Product Costs Case: Seligram, Inc.: Electronic Testing Operations Case Description: Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost centers and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems. In addition, the case demonstrates how cost systems can induce subtle and not so subtle shifts in the strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing. The firm has entered the death spiral...
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...AMIS 4310 Topics/Case Descriptions Measuring Product Costs Case: Seligram, Inc.: Electronic Testing Operations Case Description: Explores the obsolescence of a cost system when technology changes. In particular, it asks students to increase the number of cost centers and allocation bases. The firm moves from a one-center, direct labor-hour system to a three-center, direct labor-hour and machine-hour systems. In addition, the case demonstrates how cost systems can induce subtle and not so subtle shifts in the strategy of the firm. In particular, we see how certain businesses are made to look inappropriately attractive or unattractive. Cost Behavior, Capacity Analysis and the Downward Demand Spiral Case: Bridgeton Industries: Automotive Component & Fabrication Plant Case Description: Bridgeton Industries was experiencing reduced sales. To become more competitive it introduced a classification procedure for products based upon their productivity and other factors. Products were classified into three groups: world class, potentially world class, and non-world class. The firm outsources the non-world class products. This outsourcing causes the costs on the remaining products to increase because some fixed costs associated with the outsourced products did not go away. These residual costs caused more products to become non-world class and hence candidates for outsourcing. The firm has entered the death spiral...
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... 2. Calculate the reported cost of the five components listed in Exhibit 6 using: a. The existing system. b. The system proposed by the accounting manager. c. The system proposed by the consultant. 3. Which system is preferable? Why? 4. Would you recommend any changes to the system you prefer? Why? 5. Would you treat the new machine as a separate cost center or as a part of the main test room? Bridgeton Industries: Automotive Component & Fabrication Plant 1. The official overhead allocation rate used in the 1987 model year strategy study at the Automotive Component and Fabrication Plant (ACF) was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers? 2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred? 3. Consider two products in the same product line: Product 1 Product 2 Expected Selling Price $62 $54 Standard Material Cost 16 27 Standard Labor Cost 6 3 Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price remains constant and material/labor costs do not change from standard. 4. Are the product costs reported by the cost system appropriate for use in...
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...of domestic market share, ACF is facing intense competition from not only other suppliers but other Bridgeton plants as well. The task of remaining cost competitive is daunting as outsourcing seems to be catching on as a way to cut costs. Overhead Burden Rate We have used direct labor as the allocation base to calculate the figures given below. However machine hours may be a better allocation base as the plants are highly mechanized. |From Budgets |1988 |1989 |1990 | |[Total Overhead/Direct Labor] x 100 |109,890/25,294 |78157/13537 |79393/14102 | | Rate |434% |577% |563% | Gross Margin % |Product 1 |1988 |1989 | |Price | $ 62.00 | $ 62.00 | |Material Cost | $ 16.00 | $ 16.00 | |Labor Cost | $ 6.00 | $ 6.00 | |Overhead Cost | $ 26.04 | $ 34.62 | |Profit | $ 13.96 | $ 5.38 | |Gross Margin |23% |9% | |Product 2 | | | |Price | $ 54.00 | $ 54.00 | |Material Cost | $ 27.00 | $ 27.00 | |Labor...
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...Pre-requisite: ACC-512 / 516 Timing As per university time table This document was last updated: February 18, 2014 BRIEF COURSE DESCRIPTION: The aim of the course is to provide an in depth knowledge and understanding of the use of accounting information for internal purposes contrary to the external disclosure focus of the financial accounting. In particular, the objective of the course is to familiarize students with the fundamental concepts of management accounting system, and use of such information for decision making and performance evaluation. COURSE LEARNING OBJECTIVES: The primary objectives of this course are: 1. To develop an understanding of the costing, cost calculation. 2. To develop understanding of application of different techniques of cost allocation. 3. To understand the relationship between cost and volume and application of this in making different decisions. 4. To develop ability to make different decisions by using accounting information. 5. To understand the application of budgeting and standard costing as controlling tool. 6. To apply the different tools of management accounting for performance appraisal. To achieve these objectives, teaching focus will be on conveying the specific concepts and develops analysis capabilities without losing the general management perspective. COURSE MATERIALS: The course packet is ready for you to purchase at the Resource Center. IT IS ESSENTIAL FOR EVERYONE TO PURCHASE THE COURSE PACKET. This...
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...of the firm. The focus is on planning, decision-making, and control by the organization and on the accounting systems that managers have to assist them in their decisions about resource allocation and performance evaluation. The course is intended as an introduction for individuals who will make business decisions, evaluate business units, and evaluate others (or be evaluated) through the use of accounting systems. The course will be loosely divided into two topics: cost management systems and managerial control systems. Each topic is briefly described below. Cost Management Systems: The objective of the cost management system is to provide information about the costs of the goods and services sold by the firm. While financial accounting requires that product cost information be accumulated in particular ways for external reporting, the focus in the course will be on cost systems that aid managerial decision-making. We will start with a study of traditional cost systems still in widespread use today. Next, we will examine the problems associated with these systems in today’s business environment. Through the use of readings and cases, we will discuss situations in which the traditional systems provide seriously flawed or excessively costly product cost information. We will then look...
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...Measuring the Costs of Resource Usage Robin Cooper and Robert S. Kaplan Robin Cooper is a Professor at the Claremont Graduate School and Robert S. Kaplan is a Professor at the Harvard Business School. This paper describes the conceptual basis for the design and use of newly emerging activity-based cost (ABC) systems. TVaditional cost systems use volume-driven allocation bases, such as direct labor dollars, machine hours, and sales dollars, to assign organizational expenses to individual products and customers. But many ofthe resource demands by individual products and customers are not proportional to the volume of units produced or sold.^ Thus, conventional systems do not measure accurately the costs of resources used to design and produce products and to sell and deliver them to customers. Companies, including those with excellent traditional cost systems,^ have developed activity-based cost systems so that they can directly link the costs of performing organizational activities to the products and customers for which these activities are performed. ments.^ The following equation, defined for each major activity performed by the organization's resources, formalizes this relationship: Activity Availability = Activity Usage + Unused Capacity A simple example illustrates the difference between the cost of resovirces supplied and the cost of resources used to perform activities. I. ABC SYSTEMS AS RESOURCE USAGE MODELS Activity-based cost systems estimate the cost of resources...
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...Harvard Business School Publishing Case Map for Horngren, Foster & Datar: Cost Accounting: A Managerial Emphasis, 10th Edition (Prentice Hall) This map was prepared by an experienced editor at HBS Publishing, not by a teaching professor. Faculty at Harvard Business School were not involved in analyzing the textbook or selecting the cases and articles. Every case map provides only a partial list of relevant items from HBS Publishing. To explore alternatives, or for more information on the cases listed below, visit: www.hbsp.harvard.edu/educators Case Title Institution, HBSP Product Number, Length, Teaching Note Geographical and Industry Setting, Company Size, Time Frame Abstract, Key Subjects PART ONE: COST ACCOUNTING FUNDAMENTALS Chapter 1: The Accountant’s Role in the Organization Chapter 2: An Introduction to Cost Terms and Purposes Carver HBSP United States, Consulting Co. #199006 consulting, 10,000 7p employees, 1994 Daniel Dobbins Distillery, Inc. HBSP #189065 7p TN #189172 Tennessee, liquor distillery, 1988 The managing partner of a relatively new consulting firm is concerned because training costs at the firm's new training center are higher than expected. Analysis of actual costs compared to those expected is required. In addition, he is considering capitalizing some training costs for later amortization. A management control system for the center is also a priority. A distiller increases whiskey production and income declines because of accounting...
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