ABC Project-Write- up You are to assume you are a consultant working for the company. You will want your report to be professional and "ADD VALUE" to the company. Use an executive summary, followed by the detailed report. Be sure to include the following: (1) Argue for the use of Activity-based Costing by in this case by: a) Describing when Activity-based Costing is appropriate and when Traditional Costing is appropriate and when each is not appropriate to use. b) Discussing what are the strengths and weaknesses of ABC? When is it appropriate to use? What kinds of business situations suggest the need for ABC? (2) Describe the Activity-based costing system you are recommending. Include a justification for the cost driver selected. (3) Present your new cost findings. Include both per unit and total cost data. There should be tables with cost information included. (4) Make strategy recommendations for each product and for the plant. Use the cost and profit numbers to justify these recommendations. (5) Comment on the validity of the plant manager's concerm that competitors are selling below the cost of making Part 127. After her meeting with Joseph, Patty requested an investigation of the production costs and comparative efficiency. She received approval to hire Emrah Consulting Group to make an independent investigation. The staff accountant for Enrah Consulting Group has uncovered the following costs and activities associated with the two products. Part 127 Part 234 Production 100,000 500,000 S31.86 Selling Price Prime costs per unit Number of production runs Receiving orders Machine hours $24.00 S8.26 $9.53 200 100 1,000 60,000 22,500 5,000 400 125,000 250,000 5,000 Direct labor hours Engineering hours Material moves 400 Overhead is allocated using a plant-wide rage based on direct labor hours. Preliminary analysis of costs by Emrah Consulting Group revealed that similar costs could be categorized into the following cost pools. Setup costs are costs that occur each time a new production run is made. They involve retooling and reconfiguring the machines and technology Material handling costs include the equipment and personnel required to transport materials from supplier trucks to the machines. Typically, materials are taken to a storage area before being transported to machines. Each production run will need new materials and materials may also be transported during production runs. Machine costs primarily include depreciation and machine maintenance. Although the machines are depreciated using accelerated depreciation schedules, typically the machine wears out from use and are replaced before they become obsolete. Receiving costs include the costs of clerical and technical help associated with the processing of each order received from a customer. Engineering costs include the technical support staff that implement design changes in the part, manage processes to maintain quality, and provide technical information on the product. The engineering staffs maintain a record of the amount of time spent on each product. General plant costs include all the other administrative costs not included in the other cost pools. Table 2: Overhead Cost Pools Setup costs Material handling costs $240,000 900,000 1,750,000 Machine costs Receiving costs 2,100,000 1,500,000 500,000 $6,990,000 ngineering costs General plant costs Total Part 4: Reasonable recommendation to improve profitability. Explain recommendation Part 127 Part 234 Selling Price/unit Direct costs/unit Overhead/unit Gross margin/unit Total Part 127 Part 234 Total Profit Part 5: Reasonable recommendation to improve profitability. Explain recommendation: Per Unit Part 127 Part 234 Selling Price/unit Direct costs/unit Overhead/unit Gross margin/unit Total Part 127 Part 234 Total Profit Part 6: Reasonable recommendation to improve profitability. Explain recommendation Per Unit Part 127 Part 234 Selling Price/unit Direct costs/unit Overhead/unit Gross margin/unit Total Part 127 Part 234 Total Profit ABC Project-Write- up You are to assume you are a consultant working for the company. You will want your report to be professional and "ADD VALUE" to the company. Use an executive summary, followed by the detailed report. Be sure to include the following: (1) Argue for the use of Activity-based Costing by in this case by: a) Describing when Activity-based Costing is appropriate and when Traditional Costing is appropriate and when each is not appropriate to use. b) Discussing what are the strengths and weaknesses of ABC? When is it appropriate to use? What kinds of business situations suggest the need for ABC? (2) Describe the Activity-based costing system you are recommending. Include a justification for the cost driver selected. (3) Present your new cost findings. Include both per unit and total cost data. There should be tables with cost information included. (4) Make strategy recommendations for each product and for the plant. Use the cost and profit numbers to justify these recommendations. (5) Comment on the validity of the plant manager's concerm that competitors are selling below the cost of making Part 127. After her meeting with Joseph, Patty requested an investigation of the production costs and comparative efficiency. She received approval to hire Emrah Consulting Group to make an independent investigation. The staff accountant for Enrah Consulting Group has uncovered the following costs and activities associated with the two products. Part 127 Part 234 Production 100,000 500,000 S31.86 Selling Price Prime costs per unit Number of production runs Receiving orders Machine hours $24.00 S8.26 $9.53 200 100 1,000 60,000 22,500 5,000 400 125,000 250,000 5,000 Direct labor hours Engineering hours Material moves 400 Overhead is allocated using a plant-wide rage based on direct labor hours. Preliminary analysis of costs by Emrah Consulting Group revealed that similar costs could be categorized into the following cost pools. Setup costs are costs that occur each time a new production run is made. They involve retooling and reconfiguring the machines and technology Material handling costs include the equipment and personnel required to transport materials from supplier trucks to the machines. Typically, materials are taken to a storage area before being transported to machines. Each production run will need new materials and materials may also be transported during production runs. Machine costs primarily include depreciation and machine maintenance. Although the machines are depreciated using accelerated depreciation schedules, typically the machine wears out from use and are replaced before they become obsolete. Receiving costs include the costs of clerical and technical help associated with the processing of each order received from a customer. Engineering costs include the technical support staff that implement design changes in the part, manage processes to maintain quality, and provide technical information on the product. The engineering staffs maintain a record of the amount of time spent on each product. General plant costs include all the other administrative costs not included in the other cost pools. Table 2: Overhead Cost Pools Setup costs Material handling costs $240,000 900,000 1,750,000 Machine costs Receiving costs 2,100,000 1,500,000 500,000 $6,990,000 ngineering costs General plant costs Total Part 4: Reasonable recommendation to improve profitability. Explain recommendation Part 127 Part 234 Selling Price/unit Direct costs/unit Overhead/unit Gross margin/unit Total Part 127 Part 234 Total Profit Part 5: Reasonable recommendation to improve profitability. Explain recommendation: Per Unit Part 127 Part 234 Selling Price/unit Direct costs/unit Overhead/unit Gross margin/unit Total Part 127 Part 234 Total Profit Part 6: Reasonable recommendation to improve profitability. Explain recommendation Per Unit Part 127 Part 234 Selling Price/unit Direct costs/unit Overhead/unit Gross margin/unit Total Part 127 Part 234 Total Profit