Solved Royal Lawncare Company produces and sells two packaged Cost Accounting ACCT 3313

The same two aggregated cost pools used for Company A can also be used for

Company B because the consumption proportions are the same for each of the three non-production volume related activities. The products consume all three

non-production volume related activities in the same proportions. If V3 consumed ½ of the purchase orders, 1/3 of the engineering work orders and 1/5 of the

setups, then we would not be able to combine these costs into a single homogeneous pool. If historical information is used to develop ABC unit costs, i.e., data from a prior period, then the annual costs and quantities in the

calculation are established by the prior period activity levels achieved. If the ABC system is designed with budgeted data, then the annual cost estimates and

annual quantities of the activity measures would depend on the capacity level chosen.

Is activity based costing an inventory valuation method or a cost accumulation method? Do traditional cost systems tend to apply too much, or too little overhead cost to high volume products in

multiproduct companies assuming other product characteristics are equal? Why? Do traditional cost systems tend to apply too much, or too little overhead costs to small products in multiproduct

companies assuming other product characteristics are equal?

Multiple Products, Selling Costs, And Margin

A second problem with traditional cost systems is that tracing product related administrative, marketing and distribution costs

to product inventories is not a generally acceptable procedure allowable for external reporting. However, engineering design, marketing, distribution and

customer service costs are clearly part of the costs of placing a product in the hands of the customer. Since these non-manufacturing costs may differ

substantially from product to product and from customer to customer, ABC traces these costs to products and customers using additional cost pools and activity

measures. ABC also

provides potential benefits to many service oriented industries such as banking, insurance, health care, and transportation. The CMS program was organized in 1986 to improve management planning and control systems. To accomplish these goals, CAM-I’s activity

accounting system is developed around a data base concept where data is captured only once to satisfy multiple requirements.

• Since V1 is a small, low volume product and V3 is a large, high volume

  product, the direction of the resulting cost distortions is easy to predict.

• Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit.
• Understates the machine set-up cost of CC by $150,000.
• The company can sell up to 18,000 units of product A per month, and up to 3,000 units of product B for the month.

Conceptually, the three terms activity, driver and activity

measure have different meanings although these terms are frequently used interchangeably in accounting literature. The purpose of this section is to

clarify the conceptual distinction between activities, drivers and activity measures. The generalizations in the previous paragraphs are summarized in Exhibit 7-1.

A Culture That Supports New-Product Sales

For

example, many different types of work must be performed in the purchasing department, but all of this work may be conveniently classified as purchasing so

that the complexity of the ABC design is kept to a manageable level. The different types of activities, along with some examples, are summarized at the

top of Exhibit 7-3. Product complexity generally refers to product design complexity. Products with complex designs are likely to require more

engineering work, more materials related support (e.g., purchasing and materials movement), perhaps longer machine setups and more inspections than less complex

products. These additional demands on the various support activities generally cause relatively complex products to be undercosted and relatively simple

products to be overcosted. It is best practice for SAMs to hold regular planning meetings with customers and establish mutually beneficial goals to support the sale of new products.

Subject to these limitations, products can be sold in any combination. Formulate the problem as a LPP to maximize the profit. Firms which produce multiple products usually face a constraint of resources such as labor hours or machine hours. In such cases, the total operating profit can be maximized by determining the optimum production mix of products.

CVP For Multiple Products

As one senior sales leader told us, “Salespeople will never turn down the opportunity to sell new products. They view them as another arrow in their quiver and immediately see them as a key to their success. But whether they put sustained effort into selling them is another matter.” Those with a long-term orientation focus on the future payoff and develop coping strategies to deal with the obstacles they encounter along the way.

Companies that have embraced the communitarian concepts have not only been more focused than individualistic

companies, they have also been able to obtain higher quality and greater responsiveness to customer demands. These competitive advantages were obtained

by following the communitarian concepts, attitudes and practices outlined in Chapter 1. As we will see in the next chapter, teamwork and cooperation are the

building blocks of a just-in-time continuous improvement system.

must sell…

Although the terminology is relatively new, the ideas can

be traced back to around 1910 in articles written by Alexander Hamilton Church. See Relevance Lost, Chapter 3 for a discussion of Church’s ideas and

references. (Relevance Lost Main).

The unit cost distortions are equal because the production volumes for V2 and V3 are equal. We can see from Exhibit 7-8 and Figure 7-3 that each unit of V1 and V2 receive the same amount of cost in each overhead https://turbo-tax.org/happy-4th-of/ cost category. This is because

each product requires the same number of direct labor hours per unit (i.e., 1 hour each). At first, this may appear to be a fair and accurate way to allocate

overhead.

Cost-Volume-Profit Analysis

Accurately allocates the overhead for all four activity cost pools. Distorts the overhead allocations for all four activity cost pools. Only distorts the overhead allocations of the second activity cost pool. Only accurately states the overhead allocations of the second cost pool. Accurately states the overhead allocations for activity cost pools 2 and 3, but not 1 and 4.