Accounting Case 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.

• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.

The goal of traditional accounting practices is to achieve the lowest possible cost per unit by maximizing employee and equipment productivity. However, the goal of the plant’s

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

11. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is the total amount expressed on a per unit basis?

e. From the 1989 budget (exhibit 2), how much overhead cost do you think was actually saved by outsourcing muffler-exhaust systems and oil pans?

1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing

The current cost system allocates overhead costs once a year, as a function of direct labor dollars. This allocation strategy results in:

5. How would you go about deciding the appropriate batch size for the Stonehaven factory? What factors would you consider? How do they interrelate? (You may wish to do some calculations, but concentrate on thinking conceptually.)

If we compare the old job costing method with the Activity based costing method we can see in the table below that the activity base rate gives us a much more accurate insight in allocating the manufacturing overhead costs. In fact, the activity based overhead calculation shows us that the activity rates for Valves and Pumps are lower than the rates used in plantwide production rates, but the activity based rate for Flow Controllers is around 50% higher than the cost calculated in the job costing method. The reason for this difference in our opinion can be traced back to the high receiving and production control costs as well as packaging &

In order to meet customer demands for higher product quality, to comply with federally-mandated environmental regulations, and to reduce production costs, HCC must spend $2,000,000 within the next three years to upgrade equipment. The upgrade is expected to result in production efficiencies that will lower material and labor costs by reducing defective products, process waste, in-process inventory, and production man-hours through simplified work processes. It has been over a decade since significant modifications were made to the production facilities. Those changes were mostly technical in nature and did not substantially alter work processes or reduce overall employment. The average productivity gain in the industry for the past five years has been 3% per year. Financing for the loan to purchase the equipment

After talking to the supplier and meeting with your Engineers and Financial Analysts, you’ve gathered the following pieces of data:

1. State the business case for option #3, the PCB In-sourcing proposal. What is the benefit? What is the risk? How do you compare this proposal to option #1 and #2?

Under the existing cost system for the turning machine area, there are two direct costs and three cost pools for overhead costs. The two direct costs are simply Direct Labor and Direct Material, which are traced to the cost object, which is Machine Parts. The total overhead is split into three cost pools, which are the following: overhead applied on direct labor, overhead applied on material dollars, and overhead applied on ACTS machine hours. Furthermore, each cost pool is broken down into direct and period sub categories. The mentioned cost pools for the following cost drivers: Direct Labor dollars, Material dollars, and machine hours.

Due to the information, 20 acres of land equal 80 sheep according to the exchange rate of last year, a one-room cabin equal 3 acres of land and equal 12 sheep finally, a plow equals 2 goat and equal 2/3 sheep according to last year’s exchange rate and 2 carts which were traded with a poor acre of land equals 8 sheep plus 400 sheep. So Deyonne’s total assets are 500(2/3) sheep. Deyonne’s liabilities and assets deduction are 35 sheep plus 3 sheep, which will come to 38 sheep,