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Ch12HWSolutionsPlus - CHAPTER 12 ACTIVITY-BASED MANAGEMENT...

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CHAPTER 12 ACTIVITY-BASED MANAGEMENT EXERCISES 12–1 1. Plantwide rate = ($1,200,000 + $1,800,000 + $600,000)/60,000 = $60 per machine hour Unit overhead cost = ($60 × 50,000)/100,000 = $30 Activity rates: Machine rate = $1,800,000/60,000 = $30 per machine hour Testing rate = $1,200,000/40,000 = $30 per testing hour Rework rate = $600,000/20,000 = $30 per rework hour Total overhead cost = ($30 × 50,000) + ($30 × 20,000) + ($30 × 5,000) = $2,250,000 Unit overhead cost = $2,250,000/100,000 = $22.50 Improving the accuracy reduced the cost by $7.50, which is still less than the $10 reduction needed. What this means is that although accuracy has a pos- itive effect on the price, it is not the only problem. It appears that competitors may be more efficient than Timesaver. This outcome then signals the need to reduce costs. 2. Since testing and rework costs and setup and rework time are both reduced by 50%, the activity rates remain the same, although the amount of cost as- signed to the regular microwave will change: Total overhead cost = ($30 × 50,000) + ($30 × 10,000) + ($30 × 2,500) = $1,875,000 Unit cost = $1,875,000/100,000 = $18.75 The cost now is $11.25 less than the original, which allows management to reduce the price by $10, increasing the competitive position of the regular model. ABC is concerned with how costs are assigned, whereas ABM is not only concerned with how they are assigned but also with how costs can be reduced. Cost accuracy and cost reduction are the dual themes of ABM. 1
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12–7 Case Non-Value-Added Cost Root Cause Cost Reduction 1 $ 19 per unit a Process design Activity selection 2 $ 1 ,900 per setup b Product design Activity reduction 3 $80 per unit c Plant layout Activity elimination 4 $ 132 ,000 per year d Multiple* Activity selection 5 $180 per unit e Suppliers Activity elimination 6 $900,000 per year f Product design
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This note was uploaded on 02/08/2010 for the course ACTG 3000 taught by Professor C during the Spring '10 term at Oregon State.

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Ch12HWSolutionsPlus - CHAPTER 12 ACTIVITY-BASED MANAGEMENT...

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