Product Costing
Product costing assignment
1. (a) Split into fixed costs and variable costs, which are both allocated based on machine hours, but using separate rates. Also, make a distinction between the costs that are more directly related to the machines (e.g., depreciation, electricity) and those that have been allocated to the machines from other cost centers.
(b) Split total machine-related costs into three types: costs related to setup, production, and maintenance of the machines. For each type of cost, there is a single allocation rate which mingles fixed and variable costs.
Which of these systems is more like ABC? Which is more like RCA? Explain, in a couple of sentences.
2. Which would be better supported by RCA information and which by ABC information? Explain briefly.
(b) Business is slow, and the firm is considering whether or not to take an order from a customer that it does not normally serve. The customer demands low prices, and XYZ will not meet these demands when it has other, more profitable business. But management is considering whether it should do some limited business with this customer now, until the economy improves.
3. (a) The firm uses target costing and is considering the tradeoff between machining cost and assembly cost as it designs new products. Some possible designs require more machining time and less assembly time, while others require the reverse. The firm plans to replace a number of key pieces of equipment for machining and assembly in the near future.
(b) The firm is considering where to locate production of some products for which demand is increasing internationally. One possibility is a plant that runs three shifts a day. The other is a plant in another country that runs two shifts, and expansion to three is probably not practicable because of local customs and regulation.
4. Table 1 in Balakrishnan et al., Part 2, summarizes costs and benefits of different cost systems, including “Incentives to
1. (a) Split into fixed costs and variable costs, which are both allocated based on machine hours, but using separate rates. Also, make a distinction between the costs that are more directly related to the machines (e.g., depreciation, electricity) and those that have been allocated to the machines from other cost centers.
(b) Split total machine-related costs into three types: costs related to setup, production, and maintenance of the machines. For each type of cost, there is a single allocation rate which mingles fixed and variable costs.
Which of these systems is more like ABC? Which is more like RCA? Explain, in a couple of sentences.
2. Which would be better supported by RCA information and which by ABC information? Explain briefly.
(b) Business is slow, and the firm is considering whether or not to take an order from a customer that it does not normally serve. The customer demands low prices, and XYZ will not meet these demands when it has other, more profitable business. But management is considering whether it should do some limited business with this customer now, until the economy improves.
3. (a) The firm uses target costing and is considering the tradeoff between machining cost and assembly cost as it designs new products. Some possible designs require more machining time and less assembly time, while others require the reverse. The firm plans to replace a number of key pieces of equipment for machining and assembly in the near future.
(b) The firm is considering where to locate production of some products for which demand is increasing internationally. One possibility is a plant that runs three shifts a day. The other is a plant in another country that runs two shifts, and expansion to three is probably not practicable because of local customs and regulation.
4. Table 1 in Balakrishnan et al., Part 2, summarizes costs and benefits of different cost systems, including “Incentives to