This case has two separate parts.
Part I
How can activity-based management and activity-based costing (ABC) benefit an organization? Specifically, address the following points.
- How does ABC differ from other allocation methods?
- Describe the main characteristics of ABC.
- What type of companies tends to benefit from ABC?
- Comment on a company (research Internet) that has implemented ABC.
o What type of company is it?
o Was it successful?
Part II
Please answer the following questions.
- What are the general benefits of preparing the budget?
- Discuss how the budget is likely to be used for the control function.
- Variance analysis is a traditional tool used for planning and control. Comment on advantages and disadvantages of using this approach for performance evaluations.
- Do you have any suggestions for complementary or alternative performance measures?
The submission should be 3 to 5 pages and need to include answers to all the questions listed above. Include references in APA format.
Assignment Expectations
It is important to answer the questions above. The discussion should be three to five pages and written in a clear and concise manner.
Support your discussion with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.
When your paper is done, upload it to the appropriate dropbox.
SLP
Part I
Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total) for the company. Use ABC to allocate all fixed costs to the two products.
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Background information
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Total
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Prod A
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Prod B
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Beginning inventory
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0
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Units produced
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10,000
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2,500
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7,500
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Units sold
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8,000
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2,000
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6,000
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Selling price per unit
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$255
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480
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180
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Variable costs per unit
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Direct material
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100
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280
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40
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Direct labor
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60
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60
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60
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Variable overhead
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25
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40
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20
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Variable selling and admin. exp.
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10
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13
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9
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Fixed costs
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Fixed manufacturing overhead
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200,000
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Fixed selling and administrative
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100,000
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Production runs (not $)
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100
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65
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35
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Number of sales reps (not $)
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25
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15
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10
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Here are the first few lines of the segmented income statement to help you get started. Complete the statement in good format and make sure you allocate the fixed costs to the two products. When done, comment on the information and the relative profitability of the two products.
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Herrestad Company
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Segmented Income Statement for the period ending Dec. 31, 2015
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A
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B
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Total
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Sales
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$960,000
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$1,080,000
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$2,040,000
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Variable costs:
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Direct material
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560,000
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240,000
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800,000
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Part II
Differential analysis involves knowing which costs are relevant, i.e. future costs that vary among alternatives. It is important to know what information to use and not just how to execute the analysis.
Herrestad Company receives an offer to make a new product, called C, for a new customer. The customer wants to buy 1,000 units.
Product C has the same cost structure as product B with three exceptions. The new customer is only willing to pay $150 per unit, direct materials costs will decrease by $12 per unit and Herrestad does not have to incur any variable selling and administrative expenses.
- Make a list of the expenses and amounts that are relevant for this decision. How much will the sale of this product contribute to the profitability of Herrestad?
- What if the company only pays $140 per unit? How does this change the contribution towards profitability?
- If you were the manager, would you accept this order? What considerations, other than financial would enter into your decision?
There are 2 specific learning outcomes:
1. apply business theories, models, and concepts to guide analysis of problems and situations
2. utilize data-driven analysis in making business decisions.
In this SLP assignment for Module 4 our emphasis will be on understanding the concept of relevant costs. You will be summarizing all of what you learned the in the Cases, SLPs, and Discussions.
The grading rubric has been developed to measure student success in meeting the ACC202 Module 4 SLP expectations related to applying your knowledge of relevant costs in the budget process.
SLP Assignment Expectations
- Demonstrate familiarity with the concept of relevant costs.
- Write 2-4 pages, showing computations and discussing the results.
- List supporting references and cite sources.
- Use appropriate writing style (organization, grammar, & spelling - see Writing Guidelines).