StylPen, Inc. recently hired you on a special project to manage the cost accounting function for...
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StylPen, Inc. recently hired you on a special project to manage the cost accounting function for its pen division. StylPen's pen division produces two products, a "basic" plastic pen and a "customized" plastic pen that can be produced in different shapes and colors and imprinted with logos and mottos chosen by the customer. The division buys in plastic stock from which it injection molds pen casings. Ink cartridges are also purchased and assembled with the casings to produce the final product. The pen division has encountered increasing competition, especially in the basic pen market, where bidding on contracts is fierce. Cost competitiveness is essential and StylPen has been struggling especially against single-product competitors. StylPen has been more successful in the custom market where, although profit margins are higher, the company has been winning a higher proportion of its competitive bids. Consequently, StylPen's product mix has been shifting in favor of the more profitable custom pens. Activity on the production floor has increased with this shift. Custom pens are produced in smaller batches and engineering changes are often required to satisfy the preferences of particular customers. In response to demands for more relevant costing information your predecessor introduced an ABC system. Two key production activities, 1) manufacturing operations and 2) machine setups, were identified. Production costs related to these activities are now assigned to the two lines of pens based on the cost drivers of 1) machine-hours and 2) setup labor-hours, respectively. The old product costing system allocated all manufacturing overhead based on direct manufacturing labor hours. Your predecessor argued for a move to ABC because production runs for the custom pens take longer to setup and allocating setup costs based on setup labor-hours better represents resources consumed by the two pen lines. The pen division is growing in complexity and part of your job is to manage and explain the more advanced accounting information system used within the division. Your first task is to review the pen division's existing costing and budgeting information. To your dismay you are told that the division's records are in disarray and the 2020 budget has not been compiled. Since you are short on time, you decide to use the information from the last year's (2019) records to do an initial examination of the division. These records include some budget estimates assembled before the start of 2019 and actual information for 2019. StylPen, Inc. recently hired you on a special project to manage the cost accounting function for its pen division. StylPen's pen division produces two products, a "basic" plastic pen and a "customized" plastic pen that can be produced in different shapes and colors and imprinted with logos and mottos chosen by the customer. The division buys in plastic stock from which it injection molds pen casings. Ink cartridges are also purchased and assembled with the casings to produce the final product. The pen division has encountered increasing competition, especially in the basic pen market, where bidding on contracts is fierce. Cost competitiveness is essential and StylPen has been struggling especially against single-product competitors. StylPen has been more successful in the custom market where, although profit margins are higher, the company has been winning a higher proportion of its competitive bids. Consequently, StylPen's product mix has been shifting in favor of the more profitable custom pens. Activity on the production floor has increased with this shift. Custom pens are produced in smaller batches and engineering changes are often required to satisfy the preferences of particular customers. In response to demands for more relevant costing information your predecessor introduced an ABC system. Two key production activities, 1) manufacturing operations and 2) machine setups, were identified. Production costs related to these activities are now assigned to the two lines of pens based on the cost drivers of 1) machine-hours and 2) setup labor-hours, respectively. The old product costing system allocated all manufacturing overhead based on direct manufacturing labor hours. Your predecessor argued for a move to ABC because production runs for the custom pens take longer to setup and allocating setup costs based on setup labor-hours better represents resources consumed by the two pen lines. The pen division is growing in complexity and part of your job is to manage and explain the more advanced accounting information system used within the division. Your first task is to review the pen division's existing costing and budgeting information. To your dismay you are told that the division's records are in disarray and the 2020 budget has not been compiled. Since you are short on time, you decide to use the information from the last year's (2019) records to do an initial examination of the division. These records include some budget estimates assembled before the start of 2019 and actual information for 2019.
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In the manufacturing business although ABC Activitybased costing is one of the most accurate systems ... View the full answer
Related Book For
Fraud Examination
ISBN: 978-1305079144
5th edition
Authors: W. Steve Albrecht, Chad O. Albrecht, Conan C. Albrecht, Mark F. Zimbelman
Posted Date:
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