Managerial Analysis
Autor: wshah61 • September 30, 2015 • Research Paper • 519 Words (3 Pages) • 2,043 Views
Managerial Analysis
Keith Shaheen
ACC 561
July 13, 2015
Dr. Edward Hartmann
Managerial Analysis
Ideal Manufacturing Company is an organization based in Illinois that has supported the research and development (R&D) The organization has produced new agriculture and farming equipment for the company many years. The research and development department has always worked as an in-house manufacturer producing these new products for the company. Ideal Manufacturing Company has always kept this service in house and never sold the services to any outside entities. Because of the increased costs from the R&D department Ideal Manufacturing is contemplating on whether to offer these services to outside entities to off-set these costs. Activity-based costing will assist the organization to gain control of the R&D’s costs and recognize the foundation of costs for charging outside organizations wanting to utilize Ideal manufacturing’s research and development department (Kimmel, Weygandt, & Kieso, 2011).
Overhead Rates for Activity Cost
The table below shows how Ideal Manufacturing uses the activity-based costing to determine charges for outside company’s (Kimmel, Weygandt, & Kieso, 2011). Management must review the overhead rates based on the activity. This practice will assist the management team with decision making and controlling costs. The activity-based overhead rate is determined by dividing the annual cost by the cost drivers.
Activity | Annual Cost | Estimated Use of Cost Drivers | Activity-Based Overhead Rate |
Market Analysis | 1,050,000 | 15,000 Hours | $70 Per Hour |
Product Design | 2,350,000 | 2,500 Designs | $940 Per Design |
Product Development | 3,600,000 | 90 Products | $40,000 Per Product |
Prototype Testing | 1,400,000 | 500 Tests | $2,800 Per Test |
In House Manufacturing Department Costs
The total cost and the costs for each activity are calculated and shown in the table below. These are the costs that Ideal Manufacturing will sustain in-house.
Activity Cost Pools | Use of Cost Drivers | Activity-Based Overhead Rates | Cost of Each Activity Cost Pool |
Market Analysis | 1800 | $70 Per Hour | $126,000 |
Product Design | 280 | $940 Per Design | $263,200 |
Product Development | 10 | $40,000 Per Product | $400,000 |
Prototype Testing | 92 | $2,800 Per Test | $257,600 |
Total Costs: | $1,046,800 |
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