$1,170,000 for March. given next: Bryce: "March's profit performance is down once again, and I think we need to see if we can identify the problem and correct it-before it's too late. Kim, what's your assessment of the situation?" would be more satisfied with our products, and we would not only regain our market share but increase it." only regain our market share but increase it." may be that we are overpricing some of our units because we are overcosting them. We may be underpricing other units." the cost assignment using direct labor cost. Furthermore, since small batches use the same number of moves as large batches, we have some evidence that we may be overcosting our high-volume products. 3,600 technician hours per year. If the ABC and unit-based cost assignments did not differ by breaking out these three major activities, then ABC may not matter. c. Using the ABC assignments as the benchmark, the unit manufacturing cost for the Regular model is currently by $ d. If the unit product cost of the Regular model is , then the selling price could be , making the company competitive. model is one hour. Calculate the unit cost for each model using duration-based costing. The unit costs of the Regular Models is ? The unit costs of the Deluxe Models is ? How do unit costs compare to the ABC costs? DBC is much simpler and costly to use than ABC and produces about the same unit costs. Which approach would you recommend to Kim? should be recommended. More than one may apply. Explain your choice(s). Both applications are certainly , telling what is. The first describes the relationship between total overhead and direct labor cost. The second describes the relationship between material handling cost and the number of correlation between material handling costs and number of moves reinforces this diagnosis. Thus, there is clearly a role for the regression results as well. The two results taken together provide evidence that a more sophisticated costing model needs to be used, and so you could argue for a role as well. a. What is Jacob attempting to measure? Jacob is primarily focused on the used by the Phone Division. He wants to ensure that the unit costs accurate and meaningful. b. Why is he attempting to measure it? Jacob wants to measure unit cost so that better pricing decisions can be made and so that the division better understand how to costs to improve profitability. c. How is it currently being measured, and how will the measurement approach change? The current costing model assigns prime costs by direct tracing and overhead costs using a single unit-level driver-namely, direct labor costs . Jacob is arguing that the single driver is really allocation than tracing and that the unit overhead cost overcosting some products, leading to overpricing those products. He is suggesting that activity-based costing will likely lead to more accurate cost assignments. d. Where did Jacob get the data needed to carry out the proposed analyses? Jacob gathered a sample of data from one of the division's phone plants. e. Which analytic methods did Jacob use or propose to be used? moves, was a good driver of material handling costs. Taken together, the results suggested the viability of using activity-based costing, a product costing analytical model. f. When will the analysis be completed and ready for decision making? Some of the analysis, such as the results of the two regressions, yet fully completed but pending. completed and led to the direction by Kim to expand the analysis to a pilot study of ABC at the same conventional phone plant. The actual results of the pilot study g. Who needs to understand the analysis done by Jacob, and how was it or will it be communicated? Jacob has already communicated some of his analyses to key . The results of the ABC pilot study, when communicated, will then set the stage for a decision to be made by the divisional officers. following: Round the intercept to the nearest dollar and round the slope to the nearest cent. a. Formula one, Direct labor cost formula: Y=$ +$ x Prepare an income statement for the Phone Division for March. Pursuant to the request, Jacob produced the following cost and driver information: Expected activity demands: Required: 1. Answer the following regarding the product costing system of the Cable Service Division: a. Complete the following table with the appropriate product costs for the Cable Service Division: Round the answers to two decimal places. The product cost for the used for other managerial objectives, such as product mix decisions and strategic and tactical profitability analysis. The managerial objective of this method. cost includes only production costs; complying with external financial reporting guidelines is the primary The Cable Service Division reported the following activity for the month of March: unit product cost information was provided at the request of the marketing manager and was the result of a special study. continue- unless some action by management is taken to reverse the trend. During March, the Phone Division reported the following results: For the income statement associated with the Phone Division, include a supporting cost of goods manufactured statement. Phone Division Statement of Cost of Goods Manufactured For the Month of March c. Direct tracing relies on: exclusive physically observable causal relationships to assign costs. d. Driver tracing relies on: e. Based on how costs are assigned, do you think that the Cable Service Division is using a functional-based or an activity-bas Feedback Check My Work 1. Total unit costs provided. Use percentage given to multiply by total unit costs to determine cost of services sold. 2. Prepare an income statement for the Cable Service Division for March. a. Inspection is a cost, with each being defined by inspection hours per year. Each costs! . Current activity capacity for inspection is hours. Current demand for the inspection activity is hours. b. Rework is a: c. Warranty is a: the activities). Calculate the increase in March's pre-tax operating income produced by the savings. March income would increase by the amount is q 6. Using the data generated by Jacob's pilot for a preliminary ABC analysis, answer the following: b. Calculate the overhead cost per unit for each phone model using the four activities and drivers identified by Jacob (round activity rates to two decimal places). reductions." Bryce: "Jacob, I need more explanation. We have been using the same cost accounting system for the last 10 years. Why would it be a problem?" know, with the way computer technology has changed over time, it is easier and cheaper to collect and use detailed information - information that will allow us to assign costs more accurately." Bryce: "This may be something we should explore. Jacob, what do you suggest?" Bryce: "What do you think, Kim? It's your division." 'Ill talk to our quality people. Jacob, in the meantime, find out for us if moving to an activity-based system is the way to go. How much time do you need?" Jacob: "I have already been gathering data. I could probably have a report within two weeks." data: system doesn't provide the number of moves, so I had to build the data set by interviewing production personnel.) This information is provided next: Intercept (rounded to nearest dollar): Slope (Coefficient 1, rounded to the nearest cent): R Square (rounded to two decimal places): b. Formula for material handling cost (based on number of moves): Y=$+$x Intercept (rounded to nearest dollar): Slope (Coefficient 1, rounded to the nearest cent): R Square (rounded to two decimal places): c. The intercept can be interpreted as: d. Coefficient 1 can be interpreted as: e. Comment on Jacob's observations concerning the outcomes. Jacob's comments seem to be on target. explains less than 40 percent of the variability in overhead cost-not enough to justify using as the only driver to trace overhead to individual products. The a non-unit driver, explains 90 percent of the materials handling cost variability. Using the to assign materials handling cost appears reasonable and certainly better than using direct labor cost to assign this cost. In fact, as small batches use the same as large batches but much less labor, large batches are receiving too much materials handling cost. Thus, some evidence exists that high-volume products are . $1,170,000 for March. given next: Bryce: "March's profit performance is down once again, and I think we need to see if we can identify the problem and correct it-before it's too late. Kim, what's your assessment of the situation?" would be more satisfied with our products, and we would not only regain our market share but increase it." only regain our market share but increase it." may be that we are overpricing some of our units because we are overcosting them. We may be underpricing other units." the cost assignment using direct labor cost. Furthermore, since small batches use the same number of moves as large batches, we have some evidence that we may be overcosting our high-volume products. 3,600 technician hours per year. If the ABC and unit-based cost assignments did not differ by breaking out these three major activities, then ABC may not matter. c. Using the ABC assignments as the benchmark, the unit manufacturing cost for the Regular model is currently by $ d. If the unit product cost of the Regular model is , then the selling price could be , making the company competitive. model is one hour. Calculate the unit cost for each model using duration-based costing. The unit costs of the Regular Models is ? The unit costs of the Deluxe Models is ? How do unit costs compare to the ABC costs? DBC is much simpler and costly to use than ABC and produces about the same unit costs. Which approach would you recommend to Kim? should be recommended. More than one may apply. Explain your choice(s). Both applications are certainly , telling what is. The first describes the relationship between total overhead and direct labor cost. The second describes the relationship between material handling cost and the number of correlation between material handling costs and number of moves reinforces this diagnosis. Thus, there is clearly a role for the regression results as well. The two results taken together provide evidence that a more sophisticated costing model needs to be used, and so you could argue for a role as well. a. What is Jacob attempting to measure? Jacob is primarily focused on the used by the Phone Division. He wants to ensure that the unit costs accurate and meaningful. b. Why is he attempting to measure it? Jacob wants to measure unit cost so that better pricing decisions can be made and so that the division better understand how to costs to improve profitability. c. How is it currently being measured, and how will the measurement approach change? The current costing model assigns prime costs by direct tracing and overhead costs using a single unit-level driver-namely, direct labor costs . Jacob is arguing that the single driver is really allocation than tracing and that the unit overhead cost overcosting some products, leading to overpricing those products. He is suggesting that activity-based costing will likely lead to more accurate cost assignments. d. Where did Jacob get the data needed to carry out the proposed analyses? Jacob gathered a sample of data from one of the division's phone plants. e. Which analytic methods did Jacob use or propose to be used? moves, was a good driver of material handling costs. Taken together, the results suggested the viability of using activity-based costing, a product costing analytical model. f. When will the analysis be completed and ready for decision making? Some of the analysis, such as the results of the two regressions, yet fully completed but pending. completed and led to the direction by Kim to expand the analysis to a pilot study of ABC at the same conventional phone plant. The actual results of the pilot study g. Who needs to understand the analysis done by Jacob, and how was it or will it be communicated? Jacob has already communicated some of his analyses to key . The results of the ABC pilot study, when communicated, will then set the stage for a decision to be made by the divisional officers. following: Round the intercept to the nearest dollar and round the slope to the nearest cent. a. Formula one, Direct labor cost formula: Y=$ +$ x Prepare an income statement for the Phone Division for March. Pursuant to the request, Jacob produced the following cost and driver information: Expected activity demands: Required: 1. Answer the following regarding the product costing system of the Cable Service Division: a. Complete the following table with the appropriate product costs for the Cable Service Division: Round the answers to two decimal places. The product cost for the used for other managerial objectives, such as product mix decisions and strategic and tactical profitability analysis. The managerial objective of this method. cost includes only production costs; complying with external financial reporting guidelines is the primary The Cable Service Division reported the following activity for the month of March: unit product cost information was provided at the request of the marketing manager and was the result of a special study. continue- unless some action by management is taken to reverse the trend. During March, the Phone Division reported the following results: For the income statement associated with the Phone Division, include a supporting cost of goods manufactured statement. Phone Division Statement of Cost of Goods Manufactured For the Month of March c. Direct tracing relies on: exclusive physically observable causal relationships to assign costs. d. Driver tracing relies on: e. Based on how costs are assigned, do you think that the Cable Service Division is using a functional-based or an activity-bas Feedback Check My Work 1. Total unit costs provided. Use percentage given to multiply by total unit costs to determine cost of services sold. 2. Prepare an income statement for the Cable Service Division for March. a. Inspection is a cost, with each being defined by inspection hours per year. Each costs! . Current activity capacity for inspection is hours. Current demand for the inspection activity is hours. b. Rework is a: c. Warranty is a: the activities). Calculate the increase in March's pre-tax operating income produced by the savings. March income would increase by the amount is q 6. Using the data generated by Jacob's pilot for a preliminary ABC analysis, answer the following: b. Calculate the overhead cost per unit for each phone model using the four activities and drivers identified by Jacob (round activity rates to two decimal places). reductions." Bryce: "Jacob, I need more explanation. We have been using the same cost accounting system for the last 10 years. Why would it be a problem?" know, with the way computer technology has changed over time, it is easier and cheaper to collect and use detailed information - information that will allow us to assign costs more accurately." Bryce: "This may be something we should explore. Jacob, what do you suggest?" Bryce: "What do you think, Kim? It's your division." 'Ill talk to our quality people. Jacob, in the meantime, find out for us if moving to an activity-based system is the way to go. How much time do you need?" Jacob: "I have already been gathering data. I could probably have a report within two weeks." data: system doesn't provide the number of moves, so I had to build the data set by interviewing production personnel.) This information is provided next: Intercept (rounded to nearest dollar): Slope (Coefficient 1, rounded to the nearest cent): R Square (rounded to two decimal places): b. Formula for material handling cost (based on number of moves): Y=$+$x Intercept (rounded to nearest dollar): Slope (Coefficient 1, rounded to the nearest cent): R Square (rounded to two decimal places): c. The intercept can be interpreted as: d. Coefficient 1 can be interpreted as: e. Comment on Jacob's observations concerning the outcomes. Jacob's comments seem to be on target. explains less than 40 percent of the variability in overhead cost-not enough to justify using as the only driver to trace overhead to individual products. The a non-unit driver, explains 90 percent of the materials handling cost variability. Using the to assign materials handling cost appears reasonable and certainly better than using direct labor cost to assign this cost. In fact, as small batches use the same as large batches but much less labor, large batches are receiving too much materials handling cost. Thus, some evidence exists that high-volume products are