Costs and Direct Labor

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

Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability?

(TCO B) You are the project manager for three projects. You are about to estimate costs for these three projects. Given the below information on each project, recommend an appropriate estimation method and justify your answer for each.

The company has hired you as an outside consultant to review the cost system and make recommendations. You decide that

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

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.

According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.

The cost of implementation of the options: It deals with the technicians and the reduction in time of implementation. This leads to better customer service and increases efficiency of the technicians. Also considering a customer base reduction of 5% (Exhibit 2), $1 million dollars will be a prudent investment.

3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:

However, this system was found to be “ineffective for costing and bidding individual parts.” Id. While some machines produced low cost parts at high volume, other machines were producing high cost parts at low volume, which created cost discrepancies between various machines and thus misallocation of

Q3. How were the limitations of the existing cost system overcome by the ABC Cost System? What are the implications of the ABC system?

Q3. How were the limitations of the existing cost system overcome by the ABC Cost System? What are the implications of the ABC system?

The materials used per unit of production, the Run labor hours and machine hours are provided in exhibit 2. The overhead expenses per unit of the product have been apportioned according to their percentage production and usage.