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Greeting Inc

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Submitted By graym2
Words 825
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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 $80,000
Overhead per print $1.26
Print Cost $12.00
Direct Labor ($0.2 X 10 minutes) $2.00
Overhead $1.26
Total cost $15.26
John Elway (Steel Frame)

Activity Rate/Usage/Overhead Allocated

Picking Prints $0.30/15,000/$4,500
Inventory Selection and Management $0.70/30,000/$21,000
Website

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