It is your first day at a new job and you talk about the themes of cost system design. One of your new colleagues asks, “If different cost information is used for different purposes, does that mean we do not know what something costs? I thought that was what a cost system reported.” How would you respond?
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It is your first day at a new job and you talk about the themes of cost system design. One of your new colleagues asks, “If different cost information is used for different purposes, does that mean we do not know what something costs? I thought that was what a cost system reported.” How would you respond?
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- In a team of two or three students, interview the manager/owner of a local business. In this interview, ask the manager/owner the following questions: A. Does the business collect and use cost information to make decisions? B. Does it have a specialist in cost estimation who works with this cost data? If not, who is responsible for the collection of cost information? Be as specific as possible. C. What type of cost information does the business collect and how is each type of information used? D. How important does the owner/manager believe cost information is to the success of the business? Then, write a report to the instructor summarizing the results of the interview. Content of the memo must include date of the interview, the name and title of the person interviewed, name and location of the business, type of business (service, merchandising, manufacturing) and brief description of the goods/services provided by the business, and responses to questions A-D.Randy Harris, controller, has been given the charge to implement an advanced cost management system. As part of this process, he needs to identify activity drivers for the activities of the firm. During the past four months, Randy has spent considerable effort identifying activities, their associated costs, and possible drivers for the activities costs. Initially, Randy made his selections based on his own judgment using his experience and input from employees who perform the activities. Later, he used regression analysis to confirm his judgment. Randy prefers to use one driver per activity, provided that an R2 of at least 80 percent can be produced. Otherwise, multiple drivers will be used, based on evidence provided by multiple regression analysis. For example, the activity of inspecting finished goods produced an R2 of less than 80 percent for any single activity driver. Randy believes, however, that a satisfactory cost formula can be developed using two activity drivers: the number of batches and the number of inspection hours. Data collected for a 14-month period are as follows: Required: 1. Calculate the cost formula for inspection costs using the two drivers, inspection hours and number of batches. Are both activity drivers useful? What does the R2 indicate about the formula? 2. Using the formula developed in Requirement 1, calculate the inspection cost when 300 inspection hours are used and 30 batches are produced. Prepare a 90 percent confidence interval for this prediction.Felipes Restaurant and Pie Shop needs help defining the costs for his business. He also wants to know which costs are relevant or irrelevant to his decision. Identify each cost as relevant or irrelevant. Then identify the type of cost (sunk. fixed, variable, or opportunity).
- Paula Woodward is the head of the Information Systems Department at Mo Manufacturing Company. Roland Randolph, the company’s controller, is meeting with her to discuss changes in data gathering that relate to the company’s new flexible manufacturing system. Woodward opens the conversation by saying, “Roland, the old job order costing methods just will not work with the new flexible manufacturing system. The new system is based on continuous product flow, not batch processing. We need to change to a process costing system for both data gathering and product costing. Otherwise, our product costs will be way off, and it will affect our pricing decisions. I found out about this at a professional seminar I attended last month. You should have been there.” Randolph responds, “Job order costing has provided accurate information for this product line for more than 15 years. Why should we change just because we’ve purchased a new machine? We’ve purchased several machines for this line over the…You are working with a firm of Cost Consultants. A client having a large manufacturing FMCG co. comes to you for advice for installing a cost accounting system in his organization. What are the basic considerations you would keep in mind in designing a cost accounting and management accounting system for your client? What are the practical difficulties you perceive on its implementation by your client and how do you propose to overcome the same?Susan Mills, Company B's chief accountant, has developed an automated costing system that helps track the cost of production activities. This system is capable of accurately measuring and allocating post-manufacturing activities, such as selling, promotional, and distribution activities, in such a way that Company B gets a more detailed view of its product costs. One of the benefits of this system is that it allows Company B to determine which product lines are more profitable When Susan implemented the new costing system, she realized that the company's current period profits would increase significantly if the new product cost information was used for inventory valuation on the financial statements. Susan has been under intense pressure to improve the company's profits, and this would be a quick and effective way for her to help meet the company's short-term profit goals. As a result, Susan has decided to use the automated costing system to determine the company's profits. 1. Why…
- You are the main partner of Juruadit Bertauliah. Explain how “job costing” is a useful technique to be adopted in your firm.As we have discussed in previous chapters, product costs are made up of Direct Materials, Direct Labor and Manufacturing Overhead. In making a decision as to whether we should outsource the production of a product, do we take all of the product costs into consideration or do we make adjustment based on the type of cost behaviors? Please give examples.Hello, Have a question. Which of the following are the advantages of the ABC approach relative to using a single predetermined overhead application rate based on direct labor hours? Select all that apply. A. ABC does not help in decision making. B. ABC systems produce more accurate financial information. C. ABC approach is likely to provide better information to manufacturing managers. D. ABC helps in decision making. E. ABC systems produce more accurate product costing information. Thanks...
- Amber Company produces custom framing. For one job, the trainee assigned to cut the mat set the mat dimensions incorrectly into the computer. The mat was unusable and had to be discarded; another mat was cut to the correct dimensions. How is the cost of the spoiled mat handled? What additional costs can occur with the spoiled mat? What about retraining for the employee or punishment costs?The owner of Nia Systems suspects her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system. She identifies three activities: documentation preparation, information technology support, and training. She figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are driven by the number of direct labor hours worked.Estimates of the costs and quantities of the allocation bases follow: Activity Estimated Costs Allocation Base Estimated Quantity of Allocation Base Documentation preparation $47,400 Pages 1,530 pages Information technology support $120,600 Applications 700 applications Training $354,800 Direct labor hours 3,240 hours Total Indirect costs $522,800 1. Compute the predetermined overhead allocation rate for each activity. Round to the nearest dollar. Activity Total estimated overhead…What are the major differences between job-order costing and process costing systems? Give an example of a well-known company that might use job costing, and an example of a well-known company that might use process costing. Explain why you have chosen the companies that you did, and do not choose companies upon which your classmates have already commented. Participate in follow-up discussion by commenting on your classmates’ choices of companies.
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