URGENT HELP
1) Calculate the ABC costs for each product on a per-box basis. Use the ending inventory costs as the cost driver to allocate the plant-administrative overhead cost. All other overhead cost drivers are explained in the case-study. Please prepare a table similar to those used in chapter 17 showing the details of your overhead cost allocations to each product. As shown in the chapter the table should include columns for the 1) activity cost pool, 2) cost driver, 3) estimated overhead $, 4) estimated use of cost driver per activity, 5) overhead rate by activity, 6) estimated use of cost driver by product, and 7) total overhead allocated to each product by activity. If possible, use Excel, Word or a similar software to prepare the table.
2) What do these results tell you about activity-based costing versus costing based on the traditional methods of standard volume or direct materials plus direct labor?
3) Calculate each product's contribution margin per unit (box) and the total contribution margin per product using ABC, volume-based and DM plus DL based costing. Based on the ABC costing results, what changes, if any, should management make to Zauner's pricing strategy?
Historical Five-Year Plant-Administration Costs and Other Data Exhibit 3 ZAUNER ORNAMENTS Activity Dra by Product Machine \begin{tabular}{|c|c|c|c|c|c|} \hline \begin{tabular}{l} Number of \\ Omaments \end{tabular} & \begin{tabular}{l} Number of: \\ Batches \end{tabular} & \begin{tabular}{l} Operations \\ per Omament \end{tabular} & \begin{tabular}{l} Ornaments \\ per Box \end{tabular} & \begin{tabular}{c} Inspections \\ per Box \end{tabular} & \begin{tabular}{c} Sq. Footage \\ Per Box \end{tabular} \\ \hline 420,000 & 800 & 4 & 12 & 1 & t \\ \hline 300,000 & 750 & 4 & 6 & 2 & 0.5 \\ \hline 100,000 & 500 & 5 & 1 & 4 & 0.2 \\ \hline \end{tabular} Calculation of Product Costs: DM- and DL-Based Costing System Exhibit 5 ZAUNER ORNAMENTS Plant Data by Product Line As she put the finishing touches on the ansual financial statements for Zauner Oruaments, Chia-yi Yu contemplated her schedtule for the neat few wecks: As the nerw controller for Znuner Ornaments in Taiwan, Yu thought the stow-sales period in Januin? would be the perfect time for het to focts on Zhuner's mangecment-acciounting procedures: Yu had recently returned to Taiwan from graduate business school in Europe, and she was amxious to apply the knowledye she had pained at school to ber neel job. As a fint itep, Yu decided to rescarch Zauncr' carrent costing methods. BACKGROUND Zauper Omaments was a wholly swaed sabsidian of Zauncr Cryital, Isecil a large manufacturer of crystal tand glas products beadquartered in Vicnna, Austria. itself after the Secosd World War as a producer of fine enstal, cless tableware, and other similar products. The conpany enjoyod an international repotatione as a producer of hichquality glass and crystal at affordahle prisos oning to the ihilis of its master artisane, as crystal was used in fine restaratats, hoteh, and rosidonese throughost the world. ZAUNER ORNAMENTS in the fine-crystal and glass-tableware markots was begining to slow. fortine the producing the following three products there: -Note All iscactary amovet are coprocicd in US Goltan think Metz was correct. Allocating overhead based on direct materials and direet labor gives us product costs that are below our current sales price for each product line. I think we're fine now," Yu felt better after seeing Chen's second analysis, but she was not fully convinced that the revised schedule captured Zauner's product costs in the most accurate manner. White Chen was working on his analysis, Yo met with the manuficturing department to gain a better understanding of Zauner's operations. The results of these meetings are summarized in Exhibit 3. She learned that, while all three ormaments were made on the same production lines, specialty ormaments underwent an additional painting process. In the specialty-painting department, 24 fully utilized workers hand-painted intricate designs on the inside of each specialty omament. Yu also discussed with Manufacturing the types of overhead at Zauner and the specifie activities that coutd be generating the company's overhead costs. She discovered that both productionscheduling and machine-setup costs appeared to be driven primarily by the number of batches required for the annual production volume. Because the number of batches varied by product type, Yu concluded that total yearly batches might be an appropriate means of allocating production-scheduling and machine-setup costs to the different product lines. In addition, she had a little more difficulty ascertaining the root cause of equipment depreciation. It was unclear whether equipment-depreciation occuirred because of the number of machine operations performed or because of the machine rum time. Based on feedback from the manufacturing department, she decided that the number of machine operations was the better indicator of equipment depreciation. She also thought that plant depreciation coifd reasonably be based on the factory square footage used to manufacture, paint, and sture each box. Her discussions also led her to conclade that the number of inspections performed drove inspection costs, while the number of boxes used drove packaging costs. Plant administration (which included supervision, tabor relations, and clerical cotss) sppeared to be the most problenatic in deciding how best to allocate these conts. Yu woald have to make that decision won, and in the meantime, had gathered the data in Exhibits 4 and 5, which she thought might be useful in her deliberations. After sceing Zauner's manufacturing process, Ye recalled reading about seivily based costing (ABC) in graduate school. Sbe remenbered that companies used ABC syatems to assign indiroct manafacturing costs to products besed on the activities performed on those prodacts. Yu thoupht she might be able to use ABC to reflest Zauner's product costs more accurately, thereby improving product-pricing decisions. Exhibit ZACXER ORYAMENTS Calculation of Product Costs Volume-Based Costing System COST ACCOUNTING AT ZAUNER ORNAMENTS In the third week of Jamuary, Yu called the sales department to inquire about price-setting procedures for the different product lines. She quickly discovered that the sales department investigated the prices of similar products avaitable in the inarketplace and set Zauner's prices accordingly. Yu knew that the company was profitakle overafl. but wondered if the prices set by the sales department were uifficient to ensure that the individual product lines were profitable. She decided to have one of her senior analyste, Yung Chen, prepare an analysis of unit-product costs for each or Zained's three prodicte. She thought this might be helpfut in determining wbether any adfudments in the product prices were warranted. To assint Chen in his task, Yu provided him with a schodule of the factory's annual overhead coits, as follows: Later that day, Chen returned to Yu's ofice with a schedule shuwity his calculation of product costs for each of Zauncr's three products (Eatibit 11 . Chen system. Budgeted overhead was allocated to each product line, tased on the planned production of ornaments. Cben and Yu were disnayed by the resula of Chen's analysis, according to his calculations, 7 auner was selting mall plass onaments for $9.00 a bex. but it was costing the company 521.12 a box fo produce those omaments! Yu took these results to the director of Operations. David Mets. Trim ieally worried about our pricing and the efficiency of our manufacturipe processes. Yu told Metz. "According to this product-cost analysis, we are losing reoncy on both the sinalt Surely, that can't be the case, can in? Are our costs rally that mach higher tuan ober see the problem here," he told Yu. "You've allocated bvertead to each pructet hased on each product based upon dircet materials and direct labor? I think that method beet approximates the actual use of the overbead resource by each product line, and it wowh fix your problem:" Historical Five-Year Plant-Administration Costs and Other Data Exhibit 3 ZAUNER ORNAMENTS Activity Dra by Product Machine \begin{tabular}{|c|c|c|c|c|c|} \hline \begin{tabular}{l} Number of \\ Omaments \end{tabular} & \begin{tabular}{l} Number of: \\ Batches \end{tabular} & \begin{tabular}{l} Operations \\ per Omament \end{tabular} & \begin{tabular}{l} Ornaments \\ per Box \end{tabular} & \begin{tabular}{c} Inspections \\ per Box \end{tabular} & \begin{tabular}{c} Sq. Footage \\ Per Box \end{tabular} \\ \hline 420,000 & 800 & 4 & 12 & 1 & t \\ \hline 300,000 & 750 & 4 & 6 & 2 & 0.5 \\ \hline 100,000 & 500 & 5 & 1 & 4 & 0.2 \\ \hline \end{tabular} Calculation of Product Costs: DM- and DL-Based Costing System Exhibit 5 ZAUNER ORNAMENTS Plant Data by Product Line As she put the finishing touches on the ansual financial statements for Zauner Oruaments, Chia-yi Yu contemplated her schedtule for the neat few wecks: As the nerw controller for Znuner Ornaments in Taiwan, Yu thought the stow-sales period in Januin? would be the perfect time for het to focts on Zhuner's mangecment-acciounting procedures: Yu had recently returned to Taiwan from graduate business school in Europe, and she was amxious to apply the knowledye she had pained at school to ber neel job. As a fint itep, Yu decided to rescarch Zauncr' carrent costing methods. BACKGROUND Zauper Omaments was a wholly swaed sabsidian of Zauncr Cryital, Isecil a large manufacturer of crystal tand glas products beadquartered in Vicnna, Austria. itself after the Secosd World War as a producer of fine enstal, cless tableware, and other similar products. The conpany enjoyod an international repotatione as a producer of hichquality glass and crystal at affordahle prisos oning to the ihilis of its master artisane, as crystal was used in fine restaratats, hoteh, and rosidonese throughost the world. ZAUNER ORNAMENTS in the fine-crystal and glass-tableware markots was begining to slow. fortine the producing the following three products there: -Note All iscactary amovet are coprocicd in US Goltan think Metz was correct. Allocating overhead based on direct materials and direet labor gives us product costs that are below our current sales price for each product line. I think we're fine now," Yu felt better after seeing Chen's second analysis, but she was not fully convinced that the revised schedule captured Zauner's product costs in the most accurate manner. White Chen was working on his analysis, Yo met with the manuficturing department to gain a better understanding of Zauner's operations. The results of these meetings are summarized in Exhibit 3. She learned that, while all three ormaments were made on the same production lines, specialty ormaments underwent an additional painting process. In the specialty-painting department, 24 fully utilized workers hand-painted intricate designs on the inside of each specialty omament. Yu also discussed with Manufacturing the types of overhead at Zauner and the specifie activities that coutd be generating the company's overhead costs. She discovered that both productionscheduling and machine-setup costs appeared to be driven primarily by the number of batches required for the annual production volume. Because the number of batches varied by product type, Yu concluded that total yearly batches might be an appropriate means of allocating production-scheduling and machine-setup costs to the different product lines. In addition, she had a little more difficulty ascertaining the root cause of equipment depreciation. It was unclear whether equipment-depreciation occuirred because of the number of machine operations performed or because of the machine rum time. Based on feedback from the manufacturing department, she decided that the number of machine operations was the better indicator of equipment depreciation. She also thought that plant depreciation coifd reasonably be based on the factory square footage used to manufacture, paint, and sture each box. Her discussions also led her to conclade that the number of inspections performed drove inspection costs, while the number of boxes used drove packaging costs. Plant administration (which included supervision, tabor relations, and clerical cotss) sppeared to be the most problenatic in deciding how best to allocate these conts. Yu woald have to make that decision won, and in the meantime, had gathered the data in Exhibits 4 and 5, which she thought might be useful in her deliberations. After sceing Zauner's manufacturing process, Ye recalled reading about seivily based costing (ABC) in graduate school. Sbe remenbered that companies used ABC syatems to assign indiroct manafacturing costs to products besed on the activities performed on those prodacts. Yu thoupht she might be able to use ABC to reflest Zauner's product costs more accurately, thereby improving product-pricing decisions. Exhibit ZACXER ORYAMENTS Calculation of Product Costs Volume-Based Costing System COST ACCOUNTING AT ZAUNER ORNAMENTS In the third week of Jamuary, Yu called the sales department to inquire about price-setting procedures for the different product lines. She quickly discovered that the sales department investigated the prices of similar products avaitable in the inarketplace and set Zauner's prices accordingly. Yu knew that the company was profitakle overafl. but wondered if the prices set by the sales department were uifficient to ensure that the individual product lines were profitable. She decided to have one of her senior analyste, Yung Chen, prepare an analysis of unit-product costs for each or Zained's three prodicte. She thought this might be helpfut in determining wbether any adfudments in the product prices were warranted. To assint Chen in his task, Yu provided him with a schodule of the factory's annual overhead coits, as follows: Later that day, Chen returned to Yu's ofice with a schedule shuwity his calculation of product costs for each of Zauncr's three products (Eatibit 11 . Chen system. Budgeted overhead was allocated to each product line, tased on the planned production of ornaments. Cben and Yu were disnayed by the resula of Chen's analysis, according to his calculations, 7 auner was selting mall plass onaments for $9.00 a bex. but it was costing the company 521.12 a box fo produce those omaments! Yu took these results to the director of Operations. David Mets. Trim ieally worried about our pricing and the efficiency of our manufacturipe processes. Yu told Metz. "According to this product-cost analysis, we are losing reoncy on both the sinalt Surely, that can't be the case, can in? Are our costs rally that mach higher tuan ober see the problem here," he told Yu. "You've allocated bvertead to each pructet hased on each product based upon dircet materials and direct labor? I think that method beet approximates the actual use of the overbead resource by each product line, and it wowh fix your
