Part A:
1)
The cost of purchasing 5000 devices (DD11) per year = $14 × 5000 = $70,000
After discontinuing the manufacture of devices:
The direct materials = 0
The direct labor = 0
The variable factory overhead costs = 20% × $30,000 = $6,000
The fixed factory overhead costs = $55,000 - $2,000 = $53,000
Manufacturing the devices ( DD11 ) Purchasing the devices ( DD11 ) from an outside supplier The incremental cost or benefit
Total manufacturing costs ( $190,000 ) 0 $190,000
Costs of purchasing the devices 0 ($70,000) ( $70,000 )
Fixed factory overhead costs ($6,000) ( $6,000 )
Variable factory overhead costs ($53,000) ( $53,000 )
Total ( $190,000 ) ( $129,000 ) $61,000 gain/benefit
*It is recommended that Jetta Electronics Ltd. had better purchase the devices (DD11) from the outside source. A differential cost/benefit analysis is made and states that there is a gain $61,000 after purchasing the devices (DD11) and not manufacturing them. As the total costs of buying the devices are less than manufacturing them. As the total costs of the direct materials
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After that, both manufacturing and services become more capital intensive because of technological changes which resulted in prompting ABC system. ABC sees costs being incurred as activities. So, these activities should be used as the basis for allocating indirect costs to services and products. For example, machine hours, quality inspections, setups and material moves. All of these are basis for allocating indirect costs. ABC detects the invaluable and costly activities so it helps managers to avoid these activities and replace them with efficient ones. Using ABC provides managers with detailed cost information which helps them reduce costs and set a competitive
If done right, I believe that all of the costs can be allocated to each of the three products through both direct and overhead costs. The only direct costs that are being included currently are labor and manufacturing costs. I broke up overhead into overhead based off direct labor and overhead based on units sold.
...ory holding costs, ordering costs, and shortage costs, and have a classification system for inventory items.
... and cheaper to implement, but also much more accurate. The time-driven ABC approach therefore better allocate the costs to a given activity, customer, location or product. In addition, time-driven ABC allows for unused capacity to be identified, therefore enabling operational improvements, and detection of non-value added activities.
2. Increase accuracy in the product cost calculating. While using ABC, direct materials and direct labors can be classified into products, manufacturing overhead will be classified into the homogeneous cost pool. Then, apportioned the manufacturing overhead into products according to reasonable distribution cost standard. The standard of cost allocation becomes more direct and specific, leading to many traditional uncontrollable indirect cost changes into controllable direct cost. And this provides more accurate information to cost control.
In summary, the costing system a company adopts is controlled based on the nature of the production process and the link between the production stages. All of the costing systems deal with allocating the cost of material, labor, and overhead.
DataClear had also recorded very impressive sales growth in its first two years and, given the projections, were looking at 300 percent average revenue growth thru '02. The case analysis available shows that DataClear has a $600 million annual domestic market for its current product and $1.2 billion when you add in the global market in telecommunications and financial services. With product expansion, there was a potential annual $2.7 billion market ($1.5billion domestic/$1.26 billion abroad) to target in the telecommunications, financial services, chemical, petrochemical, and pharmaceutical industries combined.
...h the full expenses included. Challenge overseeing and incorporating over a huge supply change and developing patterns.
However, each product type is produced in large numbers and the production processes are repetitive with direct materials, direct labour, and also variable manufacturing overhead. In short, each product uses the same amount of direct costs as other products in the same product type. Process costing is most suited for Fancy Chocolate’s direct costs. However, since this new order from the national supplier is a special order, F.C will need to make new chocolate bars with different flavours and ingredient additives. When special custom orders are made, job order costing is suitable. With the combination of process costing and job order costing, the hybrid costing system should be used to cost direct
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
To determine the labour cost of a new style or order its SAM value is estimated and then multiplied to cost per minute and efficiency to get the actual labour cost.
Activity-based costing is used as a supplement of traditional cost accounting in a company to support manager in internal decision making. It focus on assigning the indirect cost to direct costs in order to get a more accurate cost on products. Activity-based costing uses several cost pools instead of one in traditional cost accounting. The system is easy to implement and it provides many benefits, it allows the company to respond to inefficiency by reallocating resources to more profitable activity from areas that absorb too many resources. It also allows the company to respond to manufacturing overhead cost and assumes a more accurate selling price on products in order to make more profits. Company that do not have internal expertise to conduct activity-based costing analysis may think to hire one or ask company that provides this kind of services for help.
Teunter, Ruud H, Babai, M Zeid and Syntetos, Aris A. (2010). ABC Classification: Service Levels and Inventory Costs. Production and Operations Management. Vol. 19, No. 3, pp. 343-352.
2. Increase accuracy in the product cost calculating. While using ABC, direct materials and direct labours can be classified into products, manufacturing overhead will be classified into homogeneous cost pool. Then, apportioned the manufacturing overhead into products according to reasonable distribution cost standard. The standard of cost allocation become more direct and specific leading to many traditional uncontrollable indirect cost change into controllable direct cost. And this provide more accurate information to cost control.
Since more than 40 years, Toyota Company was thinking how to develop the traditional process costing system and the production system. Some of the companies believe that the increasing of the production is a big profit, while Toyota proved the opposite. The more you increase the products out of the need of the market, the more losses you are going to gain. This kin...
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