Case: Costs and Chicago Plant

975 WordsJun 18, 20134 Pages
1. Do you recommend that G.G. Toys change its existing cost system in the Chicago plant? In the Springfield plant? Why or why not? G.G. Toys should change its existing cost accounting system from traditional costing to activity-based costing (ABC) in the Chicago plant as it is allocating its entire manufacturing overhead on the basis of just one cost driver: production run direct labor cost. Since overhead at the Chicago plant is high, accurate cost accounting system is required. Different types of dolls require different amounts of machine hours, setups, production runs, shipments, etc. By using ABC, different manufacturing overhead would be allocated to each type of doll, giving result to different contribution margins. The current…show more content…
This is the main issue. That is why it would be ideal for the Chicago plant to utilize the Activity-Based Costing system. smasher costs are high especially with multiple machines travel rapidly simultaneously. This in addition includes the setup for the modifications of dolls as well (switching from boy to little girl doll). Production run and packaging all required the aforementioned(prenominal) amount of time and work regardless of production aloofness and number of items in the shipment. If the Chicago plant switched to the activity- base cost system, G.G. Toys stop use a method of assigning costs to products or services based on the resources that the plant consumes. Rather than screw up materials and resources. The business strikes are allocated in proportion with activity based on the number of events or transactions involved in the process of providing a product or service. In this encase it would be the product, Geoffrey doll. b. I do not think that the capital of Illinois plant should change its current cost system. The plant is also using the production-run direct labor cost to allocate its overhead costs. However, because the plant produces one product with no customization, with materials purchased from local manufacturers all made by hand (little overhead cost-Exhibit 2) this cost system is effective and should not be changed. 2. Calculate the cost of a Geoffrey

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