ACCT452 Advanced Managerial Accounting

Case study ABM Andrews

Please check that the conversion costs of $1.271 million attributed to galvanised pallet nails for the financial year 1996/97 (see table 2 of the case study) are correct. To do this please prepare a spreadsheet in which you use the information in exhibits 4, 5, and 6 to produce an ABC analysis for 1996/97 for galvanised pallet nails.

For example, the costs of the cleaning cost pool in 1996/97 were $222,000. The activity volume of this cost pool was 110,000 tons. The cleaning cost per 1 ton was therefore 222,000/110,000=$2.01818. How much ABC cost is attributable to galvanised pallet nails? Exhibit 5 says they produced 2817 tons of galvanised pallet nails. Hence the ABC cost for galvanised pallet nails is 2817*2.01818=$5,685.21.

Use this way of working through all the cost pools to determine the total 1996/97 ABC conversion cost for galvanised pallet nails. You know the total should be $1.271 million according to table 2. If it is not the same then maybe the accountants at Andrews made a mistake.?

Table 2 1995-96 1.950 2600 Sales ($M) Sales in Tons Material Costs ($M) Converslon Costs ($M) Net Profits($M) 996-97 2.100 2817 1.100 1.271 (.271) 0.900 0.859 0.191