Case 1: Greetings Inc : Job Order Costing Essay

1- The total unit cost = Total Variable Cost + Production Fixed Expenses + Advertising Expense + Selling and Administrative Expense = 3.23 + 1.20 + 0.30 + 0.19 = 4.92.

11. Prepare a table that illustrates the percentage change in costs between the volume-based system and the strategic activity-based system.

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?

Only the incremental costs and benefits are relevant. In particular, only the variable manufacturing overhead and the cost of the special tool are relevant overhead costs in this situation. The other manufacturing overhead costs are fixed and are not affected by the decision.

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.

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

Wilkerson employs a Normal Cost System, which means that they use predetermined overhead rates along with actual costs for direct material and direct labor. Normal costing systems are appropriate when overhead costs are a relatively small percentage of total manufacturing costs and product diversity is limited. For Wilkerson, normal costing does not make sense. Overhead costs make up over 50 percent of total manufacturing costs and their product offering is relatively more diverse. This indicates that the current accounting system in place may be distorting costs significantly. Supporting data:

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

Peter’s Peripherals assembles multimedia upgrade kits --- sets of components for adding sound and video to desktop computers. The demand for their kits for the next four quarters is estimated in the table below. Unit manufacturing cost for each kit is $160. Holding costs on each kit is $80 per quarter. Any kit that must be delivered late is assessed a backorder cost of $120. Each worker is capable of finishing 10 kits per quarter. If the company chooses to vary work force levels, it will incur costs of $400 for each additional worker; $600 for each termination. The company currently has 28 employees.

b. Use your answer to part A to determine the total annual indirect cost assigned to:

11. Prepare a table that illustrates the percentage change in costs between the volume-based system and the strategic activity-based system.

a. For an annual volume of 12,000 tires, determine the total cost, total revenue, and profit.

9. (Ignore income taxes in this problem.) The Crawford Company is pondering an investment in a machine that

b. Use your answer to part A to determine the total annual indirect cost assigned to:

The above graph suggests that volume based computation of overhead costs does not reflect the real overhead costs based on actual production per product line (computed maximum in excess over actual). On the other hand, if we follow the allocation of overhead costs based on prime costs as illustrated in Exhibit 2 of the case, we need to consider other quantitative factors: 1. No data is available to determine the amount of raw materials used in producing each of the products. While we can assume that the production of small, colored glass ornaments uses fewer raw materials (e.g. glass) than large, colored glass ornaments, the amount of glass used to produce specialty ornaments cannot be derived from the facts of the case. 2. There is also no data available to determine the number of direct labor hours consumed for producing each product type, although evidently, specialty ornaments use more direct labor hours. Based on the above considerations, we deem it inaccurate to base overhead on prime costs, a common practice in traditional costing. In addition,