JET2 Task 4 Report Essay

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.

The following is a summary report to recommend whether Competition Bikes should change its traditional costing method to activity based costing, and an analysis of the breakeven point with regards to sales units and dollars for both CarbonLite and Titanium bikes. It also discusses the impacts to the breakeven point. The cost-volume-profit evaluation and the traditional vs activity based costing method overhead analysis were used for the review and analysis.

The following is an analysis regarding if Competition Bikes Incorporated should change its traditional costing method to activity based costing (ABC). This consideration is being given because the organization is changing its sales strategy in the San Diego plant to produce 9 Titanium bikes for every 5 CarbonLite bikes, and there are indications that manufacturing will experience a 10% increase due to new environmental regulations.

Glaser Health Products manufactures medical items for the health care industry. Production involves machining, assembly and painting. Finished units are then packed and shipped. The financial controller is interested to introduce an activity-based costing (ABC) system to allocate (or distribute) indirect costs to products. Indirect costs, as distinct from direct costs, cannot be unambiguously linked to specific products. The controller would like to calculate product costs based on ABC for planning and control, not inventory valuation.

In using ABC overhead costs are distributed differently across the three products, but in total they are the same, in total. However, ABC changes the information that managers receive to make effective business decisions, which will ultimately result in improved business results.

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 &

John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.

Businesses – from manufacturing, merchandising and service industries alike – take careful considerations for their costing systems. Setting-up competitive prices in the market can be a result of proper costing methods. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods Zauner Ornaments are currently using and upon conclusion, it will enable us to distinguish the advantages and disadvantages of each costing method.

John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to

Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The

Assigning the overhead costs to the products shows how profitable the products are after deducting all cost. However, it is important to find the appropriate method of overhead cost allocation. In Sippican’s case the traditional accounting method is used, which does not reflect the real resource usage of the different product lines. The correct method in this case would be to apply the time-driven ABC approach for cost allocation. Such method apart from showing the actual profitability after all cost deductions also depicts the differences in resource usage rates between the products and, thus, allows for identification of cost drivers. A contribution margin

Keeping in the mind importance of even the smallest decisions that management may have to face on a daily basis, integrating a different kind of cost and attempting reduce as many constraints as possible is a very important decision. When it comes to integrating ABC costing rather than traditional costing, businesses are implementing a more accurate and specific costing method than they would get if they went with traditional costing methods. GAAP allows for traditional accounting methods. This is a big deal because by using the ABC method rather than using traditional accounting method allows a more transparent and accurate costing approaches. Using ABC allows management and the other higher level employees see where money is coming from and specific expenses are made and thus give them the ability to make proper alterations to the way certain events are carried out throughout the daily process of the business and thus give management an opportunity to improve their profits and the way they do business. With traditional accost methods however, there is less accountability on specific

Cessna has a fairly straightforward product set that lends itself to ABC fairly easily. Regardless if the airframe is being designed, assembled, or serviced, the ABC activities and associated cost drivers are applicable to all operating activities. Product promotion and advertising utilize similar mediums and sales of all types of airframes are handled using similar cost drivers. Moving into the Design and Engineering phase, employees can again combine these tasks into an activity center that runs off of design hours as their primary cost driver. Airframe Fabrication covers the physical production and construction activities and would be budgeted based on multiple cost drivers depending on the hourly requirement per item. The most logical cost driver in this category is the number of parts requiring assembly or fabrication. Once assembly is complete,

ABC refers to cost attribution to cost units on the basis of benefit received from indirect activities e.g. material ordering, material handling, machine setups, quality assuring, customer support services etc. For each such activity, it is necessary to identify a cost driver that causes incurrence of cost relating to that activity. For example, hours spent on testing for a quality assurance activity may be used as application base of cost driver for this activity.