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Management Accounting Case Study

Autor:   •  April 5, 2016  •  Case Study  •  599 Words (3 Pages)  •  1,228 Views

Page 1 of 3

Simple Desk

(per Unit)

Corner Workstation

(per Unit)

Direct material Costs

$96

$497

Direct Manufacturing labour costs

9

18

Manufacturing overheads:

Design and plan the production process

12.5

100

Make layered panels

35.5

192.5

Handle material

10

20

Setup machine

2.5

10

Run machine

52

182

Inspect and package

40

40

Total unit manufacturing costs

$257.5

$1059.5

Part 1

1.

Under ABC costing, the unit manufacturing cost of Simple Desk is lower than under simple costing, and the unit production cost of Corner Workstation is higher than under simple costing. The simple costing assigns manufacturing overhead only based on the direct manufacturing labour hours, it negates other cost drivers which may contribute to the cost of product. Therefore, simple desk is over-cost and corner workstation is under-cost. However, when using the ABC method, it can have a greater accuracy, it selects a more cause-and-effect cost pool, and also have a greater understanding of overhead costs.

2. They should base on the ABC costing to evaluate their pricing of simple desk and corner workstation.

Simple Desk

Corner workstation

Total unit manufacturing cost

$257.5

$1059.5

Selling price (60% markup)

$412

$1695.2

Gross margin (%)

37.5%

37.5%

3. Incremental revenues of Multi-Pack Desk with Shelves in2010:

Revenues:

$720,000

Direct materials

$315,000

Direct manufacturing labor cost

13,500

Design and plan the production process

131,250

Additional nonmanufacturing costs

180,000

Total cost

(639750)

Incremental revenue

80,250

...

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