control system inefficiently. Budgetary control should help corporate executives monitor expenses and adjust operations accordingly. For example, senior management may reduce expenses in one department and increase the budget of another business unit based on performance indicators. For the issues with Ferguson & Son, Tom Emory’s statement regarding not knowing if the accounting department’s reports would reflect a good or bad performance shows a lack of communication within the organization. It
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increase in the overhead rate should not have a negative financial impact on the company. I will explain how Borealis Manufacturing could change the overhead application system to eliminate confusion over the product cost. Describe how an activity-based costing system might benefit Borealis Manufacturing. What is manufacturing overhead? “Manufacturing overhead includes all costs directly related to the manufacturing process of a company, or factory costs. Some of these costs are major expenditures
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The current costing strategy implemented in your company is not maximizing your ability to determine profitability of each product due to the incorrect cost allocation. You are currently using the strategy of “peanut butter” costing to assign costs to your current product line. Peanut butter costing is when you take the total costs of your products, in this case overhead, and spread them across your entire product line evenly. When you use this strategy, you can end up over allocating costs to
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the unit costs computed under the company’s new activity-based costing system with the unit costs computed under its traditional costing system. Printware’s traditional costing system assigned overhead costs at a rate of 240 percent of direct labor cost. Data for the Hawes order are as follows: direct materials, $17,552; purchased parts, $14,856; direct labor hours, 140; and average direct labor pay rate per hour, $17. Data for activity-based costing related to processing direct materials and purchased
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ACTIVITY-BASED COSTING PROBLEM 1. Contrasting Traditional Costing & Activity-Based Costing The Columbus Company produces only two products: a major computer part and cell phones. The company uses a normal cost system and overhead costs are currently allocated using a plant-wide overhead rate based on direct labor hours. Outside cost consultants have recommended, however, that the company use activity-based costing to charge overhead to products. The company expects to produce 4,000 computer
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2. Each product has the same DM and DL costs. But under the revised costing system, set-up labor is also a direct cost. The major difference is how the overhead is allocated in different system. In the standard system, the total indirect cost is $682688. The overhead rate is 439%，which is equal to indirect cost divided by total running labor $15600. To calculate the overhead of each product, we need to multiply the indirect cost by 439%. In the revised cost system, the overhead can divided into
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XIAO ZHANG Assignment: 1. Use the information in case Exhibits 1 and 2 and other necessary data in the case on activities and costs to develop an activity-based cost system for JBI to use to determine customer profitability. Use this system to estimate customer profitability for Saver Superstore, Oscar’s OddLots, Midwellen Supermarket, and Downtown Retail. * Answer: * Product
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Solutions to Questions 8-1 Activity-based costing differs from tradi-tional costing systems in a number of ways. In activity-based costing, nonmanufacturing as well as manufacturing costs may be assigned to products. And, some manufacturing costs—including the costs of idle capacity—may be excluded from prod-uct costs. An activity-based costing system typically includes a number of activity cost pools, each of which has its unique measure of activity. These measures of activity often differ from the allocation
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Financial Analysis Task 4 A1. Costing Method In order for a company to succeed and be successful, it is very important for the company to understand the difference between profit and cost of goods. There are costing tools that can help a business figure out what the cost of product is during the manufacturing process. These tools are beneficial for a company to figure out how much profit can be made. These tools take the cost of manufacturing the unit and subtract it from the sale price
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| | |Activity-Based Costing | |Product/Cost Relationships | |
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