CHAPTER 7: ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT Preston Piston manufactures two types of electric sleeping bags- Luxury and Exclusive- and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows: Luxury Exclusive Direct material $35 $60 Direct Labour $20 $20 Budgeted volume (units) 8‚000 15‚000 The management accountant has determined that the firm’s overhead can be identified with three activities: manufacturing
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accounting is an extension of traditional management accounting where analyse both internal and external information in order to achieve a desired strategic position by the use of competitive advantages that the company is having (Smith‚ 2007:p.11). Strategic management is there to provide relevant information required for the management of the company for decision making. Generally companies appoint a strategic management accountant to carry out the various activity analysis needed in order to take
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Question 1: Compute the full production cost (per gallon) of the Polynesian Fantasy and Vanilla products using a) Will’s old costing method; b) The new costing method. 1 1a) Based on Will’s old costing method (Volume Based Costing): • California Creamery has a budgeted manufacturing overhead of $600‚000 and a budgeted direct labour cost of $300‚000 • Overhead rate per direct labour cost => $600‚000/$300‚000 = $2 From Exhibit 2 CALIFORNIA CREAMERY‚ INC. Two Product Examples (2004 Data) Polynesian
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CHAPTER 12 ACTIVITY-BASED COSTING LEARNING OBJECTIVES AFTER STUDYING THIS CHAPTER‚ YOU SHOULD BE ABLE TO: 1. Discuss the limitations of using only unit-based drivers to assign costs. 2. Provide a detailed description of activity-based product costing. 3. Describe how homogeneous cost pools can be used to reduce the number of activity rates. 4. Describe activity-based system concepts including an ABC relational database and ABC software. chapter summary THIS CHAPTER EXPLAINS HOW
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supply company with a strong reputation for customer service and quality supplies. Additionally‚ DOP is unafraid to adopt new services such as its desk top deliver option which delivers smaller orders directly to individual sites as well as its traditional commercial freight delivery. DOP has also introduced and Electronic Data Interchange (EDI) in order to ease data and payment transfer from and to customers as well as building a customer website that acts as an order and account interface for its
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Title Financial & Management Accounting (MAIB) Course Code ACCO1116 Page 1 of 5 APPROVED - Resit Question 1 Decisions Ltd. is a multinational company that produces and sells spare parts for the automotive industry. The traditional costing system used by the company is based on the number of units for charging overheads to products. However‚ and the CEO thinks that this could lead to poor pricing decisions‚ considering the different level of complexity of the three main lines of production. Recent
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Springfield. In 2000 the company faced a decline in margins. In order to reduce production cost they planned to shift the production from Geoffrey dolls to specialty dolls. The firm was based on the traditional cost system which allocated all the overheads on the basis of direct labor cost. For the Chicago plant this costing system was not appropriate. The new ABC system is recommended for the plant which showed that as the margin from specialty dolls is only 3%; it should be closed down. Using these new
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TASK 1 (Be able to apply cost concepts to the decision-making process) comprise the following aspects: ➢ Generally speaking‚ Pricing strategies are of two generic types: costs-based and Market-oriented. Whereas cost-plus approaches to pricing are proactive‚ in that prices are largely determined by the organisation’s financial performance objectives‚ market-oriented approaches are reactive to market conditions and are shaped by
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Executive Summary An organisation’s management makes decisions based on the cost and profitability of its products or services. The article ‘Implementing Time-driven Activity-based Costing (TDABC) at a Medium-sized Electronics Company’ suggests that the TDABC model derived from the traditional ABC model is useful for effectively analysing an organisation’s costs and profitability. The TDABC model would be an effective decision making tool for Hotel Babylon. Article Content This article examines
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producer of traditional BLUE pens and BLACK pens. They had been thinking to extend their product line into new products that offer premium selling price. Consequently‚ five years earlier they introduced RED pens‚ which were sold at 3% premium price. A year back they introduced PURPLE pens‚ which sold at 10% premium price. Though the new products seem profitable‚ there has been a dip in the overall profitability and the new products are not even earning the margins as their traditional products.
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