Activity-Based Costing
ACTIVITY BASED COSTING
CASE STUDIES
(7-64 & 7-65)
Submitted to:
Dr. Felix D. Cena, CPA, MBA
Management Account I
Professor
Submitted by:
Neil Derrek M. Dullesco
Dan Carlo D. Poblacion
COMA4B
CASE 7-64
1. Identify the flaws associated with the current method of assigning shipping and warehousing costs to Sharp’s products.
Shipping and warehousing costs are currently assigned using tons of paper produced, a unit-based measure. Many of these costs, however, are not driven by quantity produced. Many products have special handling and shipping requirements involving extra costs. These costs should not be assigned to those products that are shipped directly to customers.
2. Compute the shipping and warehousing cost per ton of LLHC sold by using the new method suggested by Jennifer and Kaylin.
The new method proposed by Jennifer and Kaylin assigns the costs of shipping and warehousing separately for the low volume products. Doing this would require three cost assignments which are receiving, shipping, and carrying. The cost drivers for each cost are tons processed, items shipped, and tons sold.
RECEIVING COST
15 people at an annual cost of $ 500, 000
Other receiving costs 600,000 $ 1, 100, 000 / 56, 000 Tons processed = $ 19. 64
SHIPPING COST
30 people for picking & 10 for unloading at an annual cost of $ 1, 200, 000
Other shipping costs 1, 100, 000
$ 2, 300, 000
÷ 190, 000 shipping items = $ 12.11
CARRYING COST
(25 tons) x ($ 1,665) x (16%) = $ 6, 660 / 10 tons sold = $ 666
Receiving Cost $ 19.64
Shipping Cost $ 12.11 x (7 ave. shipments per ton) 84.77
Carrying Cost 666.00 Total $ 770.41
3. Using the new costs computed in Requirement 2, compute the profit per ton of LLHC. Compare this with the profit per ton computed by using the old method. Do you think that this same effect would be
CASE STUDIES
(7-64 & 7-65)
Submitted to:
Dr. Felix D. Cena, CPA, MBA
Management Account I
Professor
Submitted by:
Neil Derrek M. Dullesco
Dan Carlo D. Poblacion
COMA4B
CASE 7-64
1. Identify the flaws associated with the current method of assigning shipping and warehousing costs to Sharp’s products.
Shipping and warehousing costs are currently assigned using tons of paper produced, a unit-based measure. Many of these costs, however, are not driven by quantity produced. Many products have special handling and shipping requirements involving extra costs. These costs should not be assigned to those products that are shipped directly to customers.
2. Compute the shipping and warehousing cost per ton of LLHC sold by using the new method suggested by Jennifer and Kaylin.
The new method proposed by Jennifer and Kaylin assigns the costs of shipping and warehousing separately for the low volume products. Doing this would require three cost assignments which are receiving, shipping, and carrying. The cost drivers for each cost are tons processed, items shipped, and tons sold.
RECEIVING COST
15 people at an annual cost of $ 500, 000
Other receiving costs 600,000 $ 1, 100, 000 / 56, 000 Tons processed = $ 19. 64
SHIPPING COST
30 people for picking & 10 for unloading at an annual cost of $ 1, 200, 000
Other shipping costs 1, 100, 000
$ 2, 300, 000
÷ 190, 000 shipping items = $ 12.11
CARRYING COST
(25 tons) x ($ 1,665) x (16%) = $ 6, 660 / 10 tons sold = $ 666
Receiving Cost $ 19.64
Shipping Cost $ 12.11 x (7 ave. shipments per ton) 84.77
Carrying Cost 666.00 Total $ 770.41
3. Using the new costs computed in Requirement 2, compute the profit per ton of LLHC. Compare this with the profit per ton computed by using the old method. Do you think that this same effect would be