Question 1 Waratah Ltd manufactures electronic devices, including PDAs, MP3 and MP4 players, for home and business use. Three years ago, it implemented an activity-based costing system. Both the management accountants and the manufacturing managers are very pleased with the results, as they now have accurate product costing information that they can use for a variety of decisions. However, the ABC system focuses only on product design and manufacturing costs. The activity- based costs of Waratah's major products are as follows: Activity Designing Purchasing Assembling Finishing Total activity cost PDA/Phone PDA Basic PDA+ $ 100 $ 110 $125 150 95 130 890 1200 1400 260 $1400 250 $1655 250 $1905 In July, Hannah Allen, the assistant accountant, noticed that over the last six months the spending in both the Customer Support Department and the Sales Department had been steadily increasing. The previous month's costs had been 20 per cent above budget! The customer support supervisor, Bill Dominico, is able to explain exactly why this is happening. He has had to employ new staff, there is more overtime being worked, and some of the service calls have been outsourced to a third-party maintenance company. But all this was necessary, as he explains: If a customer has a problem, we have to fix it! And if we have spent more than our budget, then that is just too bad. It is important to keep customers happy. Why, only the other day the managing director was telling us how important our customers are and how customer satisfaction is critical to the company's success. Hannah asks Bill if she can have access to the records of his department for the past three months (June quarter). She intends to analyse the service calls to see exactly where the extra Note: Total activity cost is per unit. |