South Dakota Microbrewery

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?

14. A decision to work closely with a limited number of suppliers for the purpose of ensuring that the proper materials are available at the optimal time is an example of:

The total product and per bottle cost under allocation based on direct-labor hours for Buffalo Ale, Bismark Bock and Four Heads Stout is $450.86 and $0.85, $347.79 and $0.91 and $369.96 and $0.86, respectively. Under activity based costing the total product and per bottle cost for Buffalo Ale, Bismark Bock and Four Heads Stout is $317.58 and $0.60, $615.5 and $1.6 and $379.29 and $0.88, respectively. Calculations can be found in Appendix A.

Company Wide Overhead Rate equal Forecast Overhead divided by Expected Machine Hours Overhead Rate equal $480,000 equal $6 per machine hour 80,000. Company Wide Rate: Direct Material Costs x Batch Size plus Direct Labor Costs x Batch Size Maxiflow: Alaska: 135 x 20 equal 2700 110 x 20 equal 2200 75 x 20 equal 1500 95 x 20 equal 1900 equal $4200 per batch equal $4100 per batch Departmental Rate. Direct Materials Costs plus Direct Labor Costs divided by Each Department Hour Maxiflow: 135 plus 75 equal $210 Radiator Parts Fabrication: 210 divided by 28 equal $7.50 per batch Radiator Assembly, Weld, and Test equal 210 divided by 30 equal $7 per batch Compressor Parts Fabrication: 210 divided by 32 equal $6.60 per batch Compressor Assembly and Test: 210 divided by 26 equal $8.10 per batch Alaska: 110 plus 95 equal 205 Radiator Parts Fabrication: 205 divided by 16 equal $12.80 per batch Radiator Assembly, Weld, and Test: 205 divided by 74 equal $2.70 per batch Compressor Parts Fabrication: 205 divided by 8 equal $25.60 per batch Compressor Assembly and Test: 205 divided by 66 equal $3.10 per batch. There was only a $100 difference between Maxiflow and Alaska when it came to company-wide rates per batch.

2.) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.

Both systems have their advantages and disadvantages, the labor-based allocation method provides a fast straightforward method for businesses with labor intensive processes that in many businesses make up the majority of these costs. For this microbrewery however, especially within overheads the percentage of costs labor attributes towards is relatively minimal. Therefore reducing the effectiveness of such a method. ABC however represents a more in depth look at cost allocation and within such a business where there are a huge variety of factors involved looking at a more segmented form of activity based cost allocation is extremely important.

The Kenton Company processes unprocessed milk to produce two products, Butter Cream and Condensed Milk. The following information was collected for the month of June:

1. What environmental issue does the New Belgium Brewing Company work to address? How has NBB taken a strategic approach to addressing these issues? Why do you think the company has chosen to focus on environmental issues?

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

The above cost system was efficient during the 1980s because it split up overhead over three cost pools, adding an additional pool, which has machine hours as its cost driver. This proved efficient because “[w]ith increased usage of automated machines, direct labor run time no longer reflected the amount of processing being performed on parts, particularly when one operator was responsible for several machines.” Packet, pg. 7.

• This cost method does not provide the best system for JDCW’s cost allocation. By using only three overhead rates the present system grossly undermines the true production costs since other activities of the production process are not acknowledged.

1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing

The cost pool is divided by the number of the cost driver takes place, and that will give an overhead rate per cost driver and the overheads are allocated to the different products from the cost pool, depends on their particular usage of the cost driver. This approach is more informative and accurate than those based on a less detailed analysis of overheads and is very useful to the companies which have an overheads a very large part of the total cost.

In Traditional production system the total manufacturing overhead cost is usually divided by direct labor hours. This could work if company produces similar products that do not vary in process and indirect cost is a small percentage of direct cost.

ABC provides a path to assign the overhead to the product requiring the overhead. In the above scenario, 75% of the production efforts are for product A, so 75% of the overhead can be assigned to product A. “Activity-based costing attempts to overcome the perceived deficiencies in traditional costing methods by more closely aligning activities with products. This requires abandoning the traditional division between product and period costs, instead seeking to find a more direct linkage between activities, costs, and products”(Walther, 2010). ABC is very beneficial to organizations that produce many products. ABC applies all costs (direct and indirect) to a product’s cost. To apply the principles of ABC, and organization must first gather all of the available cost information for the organization. Once this is complete, the organization must identify activities. This is an important step because too many activities will become too large an undertaking to manage while too few will not yield the desired results. Once the activities are identified, the organization must identify traceable costs. These are costs that can be directly related to a product. At this point, one must assign the remaining costs. These are costs, such as janitorial services that cannot be tied to a specific product. Once all costs are assigned, the organization must determine the per activity allocation rates. For instance, if it costs a company $10,000 to