Managerial Prospective
Managerial Perspective
ACC/561
February 10, 2014
Seth Jardine
Activity-Based Overhead Rate
R&D activities fall into four pools. The four activity pools are market analysis, product design, product development, and prototype testing. The annual costs are $1,050,000 for market analysis, $2,350,000 for product design, $3,600,000 for product development, and $1,400,000 for prototype testing. The total estimated drivers for each activity are 15,000 hours of market analysis, 2,500 designs, 90 products, and 500 tests. Per the computed activity-based overhead rate for each activity cost pool, market analysis is $70 per order including 940 product designs with 40,000 products, and an estimated 2800 tests. With these alarming numbers, R&D management has decided to explore different possibilities.
Activity-Based Costs for In-House Manufacturing R&D management has decided to explore different costs managing strategies to aid in the uncontrollable operating costs that have become unmanageable. One option the management team has decided to explore is the in-house users of the department’s services. In-house manufacturing department that consumed 1,800 hours of market analysis time would have an estimated overhead of $126,000 that would include 280 designs for $270,720 with 10 products at $400,000, and the requested 92 engineering tests for $257,600.
Activity-Based Costs for Outside Manufacturing As R&D ventures into various options to support better costs management, a bid with an outside company on a contract may be a favorable option. The contract bid estimated at $56,000 costs for 800 hours of market analysis time with 178 designs at $167,320, including 3 products at $120,000, and a total of 70 engineering tests for $196,000.
Benefits of Applying Activity-Based Costs As Ideal Manufacturing considers applying activity-based costs to R&D activity for both in-house and outside charging the
ACC/561
February 10, 2014
Seth Jardine
Activity-Based Overhead Rate
R&D activities fall into four pools. The four activity pools are market analysis, product design, product development, and prototype testing. The annual costs are $1,050,000 for market analysis, $2,350,000 for product design, $3,600,000 for product development, and $1,400,000 for prototype testing. The total estimated drivers for each activity are 15,000 hours of market analysis, 2,500 designs, 90 products, and 500 tests. Per the computed activity-based overhead rate for each activity cost pool, market analysis is $70 per order including 940 product designs with 40,000 products, and an estimated 2800 tests. With these alarming numbers, R&D management has decided to explore different possibilities.
Activity-Based Costs for In-House Manufacturing R&D management has decided to explore different costs managing strategies to aid in the uncontrollable operating costs that have become unmanageable. One option the management team has decided to explore is the in-house users of the department’s services. In-house manufacturing department that consumed 1,800 hours of market analysis time would have an estimated overhead of $126,000 that would include 280 designs for $270,720 with 10 products at $400,000, and the requested 92 engineering tests for $257,600.
Activity-Based Costs for Outside Manufacturing As R&D ventures into various options to support better costs management, a bid with an outside company on a contract may be a favorable option. The contract bid estimated at $56,000 costs for 800 hours of market analysis time with 178 designs at $167,320, including 3 products at $120,000, and a total of 70 engineering tests for $196,000.
Benefits of Applying Activity-Based Costs As Ideal Manufacturing considers applying activity-based costs to R&D activity for both in-house and outside charging the