Plum Electronics

iii. The following employee costs were incurred: direct labor, $229,000; indirect labor, $54,000; and administrative salaries, $117,000.

3. (TCO 2) Overhead costs have been increasing due to all of the following except

Assumption 3. – Identify and calculate Indirect costs by each employee for Corp Svcs and Technology Ops charges. Currently, the unit costs are not passed to Control Systems but at the high-level to CEHE.

Cost analysis: fixed versus variable costs direct versus indirect costs; traditional costing and activity based costing

Provide full documentation of the above costs. If possible, include reports from your Human Services system by employee.

In order to examine the relationship of overhead costs and number of consultants, Jenkins found the amount of the budget, which was deemed variable, and which was deemed fixed. The budgeted variable amount was obtained by multiplying each expense’s budgeted amount by the percent in which was expected to be variable. Then, she subtracted the budgeted

This cost system treated most, sales, marketing, and administrative costs as fixed costs or as a percentage of sales revenue. This simplistic approach was used to allocate overhead costs. Indirect costs were manufacturing costs that were allocated to products based on direct labor, or they were selling & administrative costs that were treated as period expenses and were unanalyzed. In this system if a customer sales price exceeded the full manufacturing cost plus the allocation of SM&A (sales, marketing, and administrative costs) then the customer appeared to be profitable when in fact the customer wasn’t profitable at all.

The first exhibit shows the ten-year financial summary in millions. It showed that the net sales in the United States and international in millions of dollars during the year 1980 was 1,450 and that increased to 1,904.7 in 1989. The cost of goods sold in millions was 831.1 in 1980 and it rose to 966 in 1989. The marketing, research, engineering, and administrative expenses also increased with the net sales and cost of goods sold. The earnings before income taxes climbed to the highest at 212.6 million in 1989. This

Traditional costing is based upon three main objectives. The first process allows, management to group costs by

In addition, it wrongly allocated its indirect costs at volume bases. The use of process technology mentioned in the case led to an increase in factory overheads Since direct labor hours was not a cost driver of them, allocating its large proportion of fixed factory overheads and other indirect batch-level costs on the basis of DLHs in this cost system did not accurately measure how resources were being used. As a result, these inaccurate allocations would have significant costs to Elkay. Moreover, it disregarded its cost structure in which most costs were “fixed” that would not vary in the short run and should be allocated based on its practical capacity. By using the “actual sales volume” as the allocation base for allocating its large corporate overheads, this standard costing system in fact over-pricing its products for its actual productivity was lower than the practical capacity under the intense competition. As a consequence of all problem within the standard costing system, PPD urgently needed an accurate costing system.

The decision to implement a new or change a current product costing system requires a lot of research and pre-planning. In order to determine the most effective product costing system management must decide which costs should be included in the product costs, at what level will direct costs be tracked, how indirect costs will be structured, and when to capture the indirect costs. Once all the costs have been identified and organized into fixed, variable, or overhead categories, management must then decide which product costing system would provide the output information necessary for important business decisions.

One positive aspect of adopting the variable costing system that was described in the text, is some of the staff members do not seem to understand absorption costing, the current costing method. When using absorption costing, income is affected by sales volume and production volume changes. Variable costing may be more suitable for management who do not have a financial background. Because management needs to be able to make informed decisions, it is imperative that the financial information provided to them is meaningful.

New Zealand Products Ltd is a manufacturing organisation based in Auckland. The organisation manufactures many different types of building, handyman and metal farming products which it sells to many of the major hardware chains and other home improvement and farming centres throughout New Zealand. The company has been manufacturing products since 2003 and is very stable and well thought of in the current market.

Before we continue, it would be good to discuss the three methods discussed in step 4. The direct method allocates costs directly from the support departments to the operating departments that use its services. Example: the personnel department might allocate its overhead (i.e., ALL of its

This paper will discuss about the different costing system that a company can adopt. It will also try to shed light into the similarities and differences among the job order costing and process costing. It will try to find out which costing a service firm such as an advertising agency would use. Then it will focus on how both the systems provide decision-making information for a company. After that this paper will also talk about activity based costing, provide examples where activity based costing is preferred over traditional costing. Then, it will explain how this costing is useful in decision making.