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(WIP) ACC 350 Exam 1 Study Material

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2. For each activity,

2. For each activity, identify an activity driver and calculate the activity driver rates. Material Handling-- # of moves (in batches) Number of batches: Standard: 15,000 units / 30 units/batch = 500 batches Unique: 5,000 units / 10 units/batch = 500 batches Number of moves: Standard: 500 batches * 2 moves/batch = 1,000 moves Unique: 500 batches * 3 moves/batch = 1,500 moves 2,500 moves $30,000 / 2,500 moves = $12/move Machine Set-up—Set-up hours Number of set-up hours: Standard: 500 batches * 4 hrs/batch = 2,000 hrs Unique: 500 batches * 6 hrs/batch = 3,000 hrs 5,000 hrs $100,000 / 5,000 hrs = $20/set-up hr Engineering Support—Engineering hours $150,000 / 3,000 hrs = $50/hr Power for Machines—Machine hours Number of machine hours Standard: 15,000 units / 7.5 units/MH = 2,000 MHs Unique: 5,000 units / 2.5 units/MH = 2,000 MHs 4,000 MHs $80,000 / 4,000 MHs = $20/MH Providing Space—Equally to each product line

Standard: ($42,500 * .50) / 15,000 units = $1.42/unit Unique: ($42,500 * .50) / 5,000 units = $4.25/unit 3. Calculate the cost of the two products using ABC. Standard Unique OH Mtl handling ($12/move * 1,000; $12/move * 1,500) $12,000 $18,000 Set-ups ($20/hr * 2,000; $20/hr * 3,000) 40,000 60,000 Engin. Support ($50/hr * 1,000; $50/hr * 2,000) 50,000 100,000 Power ($20/MH * 2,000MH; $20/MH * 2,000MH) 40,000 40,000 Space 21,250 21,250 Total OH Costs $163,250 239,250 Number of units 15,000 5,000 OH Cost/Unit $10.88 $ 47.85 Prime Costs (DM & DL) 85.00 125.00 Total Cost/Unit $95.88 $172.85 4. How did the cost of the two products change and why? Using ABC, the cost of the Standard product declined and the cost of the Unique product increased. The traditional method of product costing did not take into account all of the resources consumed by the Unique product, and overestimated the resources consumed by the Standard product. 5. Discuss how the company would go about improving profitability. • Improve productivity by reducing the cost of the activities. • Reduce the activity requirements (activity quantities) associated with the Unique product. • While we don’t have pricing information, we should consider: o Increasing the price of the Unique product. o Emphasize (increase sales) of the Standard product and de-emphasize (reduce sales) of the Unique product. o Drop the Unique product if the avoidable costs associated with the Unique product are greater than the Unique product’s contribution margin