Acc 561 - Ideal Manufacturing Company: Managerial Analysis
Autor: sheshe91606 • July 16, 2016 • Coursework • 699 Words (3 Pages) • 951 Views
Ideal Manufacturing Company: Managerial Analysis
Accounting - ACC/561
February 1, 2016
Jason See
Ideal Manufacturing Company: Managerial Analysis
The Research and Development (R & D) department at Ideal Manufacturing Company, in Sycamore Illinois, provides market analysis, product design, product development and prototype testing for its internal departments. The department is incurring higher cost for providing services to its internal customer the department is thinking of providing its services to customers outside of the company. The R & D department needs to know if they were to provide these services to external customers, will the venture be beneficial for them to invest in. For the R & D department to know if providing their services to external customer is beneficial they will need to perform a costing analysis on their overhead cost in the department. The R & D department will be using the activity-based costing (ABC), which is an “approach for allocating overhead cost” (Kimmel, Weygandt, & Kieso, 2011, section 17-1) based on multiple activity pools. These pools are driven by its cost drivers such as hours, designs, products, and engineering testing. Below are the total estimated dollars that the company can make yearly from each of their activity pool and the total estimated numbers for their cost drivers.
The R & D department will perform a costing analysis using the activity-based costing to find the overhead rate per unit for each of the activity pools. They also will use estimated numbers to find the total estimated dollars for their internal customers and external customers. Finally, the R & D department will research the benefits of using the activity-based costing.
Activity pools | Total estimated dollars |
Market Analysis | $1,050,000 |
Product Design | $2,350,000 |
Product Development | $3,600,000 |
Prototype Testing | $1,400,000 |
Totals for all activities | $8,400,000 |
Activity pools | Cost drivers | Total estimated numbers |
Market Analysis | analysis hours | 15,000 |
Product Design | number of designs | 2,500 |
Product Development | number of products | 90 |
Prototype Testing | number of tests | 500 |
Activity-Based Overhead Rate
The R & D department found the overhead rate per unit by dividing each of the estimated totals of the activity pool by each of the estimated total numbers of cost drivers; below are the numbers.
Activity pools | Total estimated dollars |
Market Analysis | $70 per hour |
Product Design | $940 per design |
Product Development | $40,000 per product |
Prototype Testing | $2,800 per test |
...