Having graduated from UWI Roytec with an Associate Degree, the Chief Executive Officer of your company, a manufacturing company, has asked you to explain some of the concepts learned and to demonstrate how they can be applicable to the business. This allows you the opportunity to analyze the company's details provided and to demonstrate your understanding of the concepts and theories covered in the Management Accounting syllabus. A) The first area of concern is the allocation of the company's overhead costs to its various products. The C.E.O. states that he has heard about A.B.C. Costing and wants to know: 1) What is the difference in the method of allocation of overheads using the A.B.C. system as opposed to using the traditional method which has been used in the company for many years in the past? You are then given the following information about the company's operations, which should be used to demonstrate the differences: >The estimated overheads for the next year are $ 1,040,000. > The company produces two products, one made from Wool and the other from Cotton. Overheads have been traditional allocated on Labour Hours, which are estimated to be 520,000 for the next year, distributed evenly between the two products. To experiment with the ABC system, two Cost Pools have been established, they are Cutting and Design. The Cost Drivers for these pools are Machine Hours and Number of Set ups respectively. >The total overheads allocated to the Cutting Cost Pool is $ 500,000 and to the Design Cot Pool $ 540,000. The following additional information about the Cost Drivers is also supplied: Wool Cotton Totals Machine Hours 100,000 100,000 500 200,000 Number of Set Ups 1,000 1,500 The C.E.O. then asks: 2) What would be the difference in the amount of overheads allocated using each method. using the data supplied.
Having graduated from UWI Roytec with an Associate Degree, the Chief Executive Officer of your company, a manufacturing company, has asked you to explain some of the concepts learned and to demonstrate how they can be applicable to the business. This allows you the opportunity to analyze the company's details provided and to demonstrate your understanding of the concepts and theories covered in the Management Accounting syllabus. A) The first area of concern is the allocation of the company's overhead costs to its various products. The C.E.O. states that he has heard about A.B.C. Costing and wants to know: 1) What is the difference in the method of allocation of overheads using the A.B.C. system as opposed to using the traditional method which has been used in the company for many years in the past? You are then given the following information about the company's operations, which should be used to demonstrate the differences: >The estimated overheads for the next year are $ 1,040,000. > The company produces two products, one made from Wool and the other from Cotton. Overheads have been traditional allocated on Labour Hours, which are estimated to be 520,000 for the next year, distributed evenly between the two products. To experiment with the ABC system, two Cost Pools have been established, they are Cutting and Design. The Cost Drivers for these pools are Machine Hours and Number of Set ups respectively. >The total overheads allocated to the Cutting Cost Pool is $ 500,000 and to the Design Cot Pool $ 540,000. The following additional information about the Cost Drivers is also supplied: Wool Cotton Totals Machine Hours 100,000 100,000 500 200,000 Number of Set Ups 1,000 1,500 The C.E.O. then asks: 2) What would be the difference in the amount of overheads allocated using each method. using the data supplied.
Chapter9: Responsibility Accounting And Decentralization
Section: Chapter Questions
Problem 1EB: Assume you have been hired by Cabelas Sporting Goods. As part of your new role in the accounting...
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Transcribed Image Text:Having graduated from UWI Roytec with an Associate Degree, the Chief Executive
Officer of your company, a manufacturing company, has asked you to explain some of
the concepts learned and to demonstrate how they can be applicable to the business.
This allows you the opportunity to analyze the company's details provided and to
demonstrate your understanding of the concepts and theories covered in the
Management Accounting syllabus.
A) The first area of concern is the allocation of the company's overhead costs to its various
products. The C.E.O. states that he has heard about A.B.C. costing and wants to know:
1) What is the difference in the method of allocation of overheads using the A.B.C.
system as opposed to using the traditional method which has been used in the
company for many years in the past?
You are then given the following information about the company's operations, which should be
used to demonstrate the differences:
> The estimated overheads for the next year are $ 1,040,000.
>The company produces two products, one made from Wool and the other from
Cotton.
> Overheads have been traditional allocated on Labour Hours, which are estimated to
be 520,000 for the next year, distributed evenly between the two products.
To experiment with the ABC system, two Cost Pools have been established, they
are Cutting and Design.
> The Cost Drivers for these pools are Machine Hours and Number of Set ups
respectively.
The total overheads allocated to the Cutting Cost Pool is $ 500,000 and to the Design
Cot Pool $ 540,000.
> The following additional information about the Cost Drivers is also supplied:
Wool
Cotton
Totals
Machine Hours
Number of Set Ups
100,000
1,000
100,000
500
200,000
1,500
The C.E.O, then asks:
2) What would be the difference in the amount of overheads allocated using each method.
using the data supplled.
A A
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