Management Accounting Case Study
Autor: Cheung Shuk Man Ruby • April 5, 2016 • Case Study • 599 Words (3 Pages) • 1,129 Views
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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