problems HW 5-34, 5-51 parts 1, 2, & 4
5-34 Role of Activity-Based Costing in Implementing Strategy
What are the key strategic issues facing Laurent, and how can ABC costing assist in resolving
these issues?
5-51 Activity-Based Costing; Customer Group Cost Analysis
The City of Indianapolis-Potholes Case
1.
Month
Jan
Cost
$87K $87K $87K
Production 24K
Cost/unit
Feb
24K
March Apr
24K
$3.63 $3.63 $3.63
May
June
July
Aug
Sept
Oct
Nov
Dec
$87K $87K $87K $87K $87K $87K $87K $87K $87K
36K
36K
36K
36K
36K
24K
24K
24K
24K
$2.42 $2.42 $2.42 $2.42 $2.42 $3.63 $3.63 $3.63 $3.63
2. $1,044,000 / [180K+168K] = $3.00
3.
$1,044,000 / [36K * 12] = $2.42
4. Charge operating expenses when operating at peak capacity (36,000 per month) 5
peak months are April through August.
5. is This not plausible procedure to consider because the cost rate in the peak period is half
the cost rate in the slack period. The peak period requires more resources to be acquired
and any additional production in the peak-period months will require even more capacity
to be added.
6. The strengths and weaknesses of the 5 approaches:
-
1) Prefer this one. The Cost per unit adjusts to the level of production during peak and
non-peak months.
-
2) This approach is a basic $3 cost throughout the year but you dont make enough
profit in peak months to cover for losts profit in non-peak months.
-
3) The price is too low, may not make enough profit.
-
4) May help cover costs when operating at peak-time.
-
5) If you sell more than capacity/what is expected, this approach may cost you more.