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session4_part2_student (1-slide per pg) - method use in...

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Case: High Case: High - - Tech, Inc. Tech, Inc. Choice of a Product Manager
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Product Name Special Regular High High-Tech provides the following product & cost information Tech provides the following product & cost information Product Name: Special Regular Production volume 5,000 15,000 Selling price $395 $195 Unit DM & labour costs $200 $80 Direct labor-hours (est.=actual) 25,000 75,000 Additional Overhead Information Activities Budgeted Cost Activities (unit) Special Regular Total Engineering Additional Overhead Information: Engineering 125,000 $ Engineering hours 5,000 7,500 12,500 Setups 300,000 Number of setups 200 100 300 Machine running 1,500,000 Machine-hours 50,000 100,000 150,000 Number of Packing 75,000 packing orders 5,000 10,000 15,000 Total: 2,000,000 $ If manager performance (&bonus) is based on product profitability, would you like to be the manager making product “special” or “regular”?
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Traditional Way: If DL is the cost driver If DL hour is the cost driver: POHR=2,000,000/100,000 =$20/DLH Special Regular OH applied /Unit = 20*25,000/5,000 OH applied /Unit = 20*75,000/15,000 = $100/ Unit = $100/Unit
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Traditional Way: If DL is the Cost Driver 8 4 4 Product Profitability Special Regular Unit selling price 395 $ 195 $ Unit production costs: Direct material and labor 200 80 Factory overhead 100 100 Cost per unit 300 180 Product margin 95 $ 15 Which one is more profitable?
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Traditional Way: Other Cost Driver? If machine hour is the cost driver If machine hour is the cost driver: POHR=2,000,000/150,000 =$13. 3/MH Special OH applied /Unit Regular OH applied /Unit =50,000/5,000* $13.3 = $133 = 100,000/15,000*13.3 = $89 Special Regular Unit selling price 395 $ 195 Unit production costs: Direct material and labor 200 80 Factory overhead 133 89 Cost per unit 333 169 Product margin 62 $ 26 $ Special: $310,000; Regular: $390,000
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Which product? So ??
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Activity-Based Costing-Two Stage Procedure Direct Direct Shipping Materials Labour Costs First-Stage Allocation Customer Order Order Siz Customer Relation Other Product Design Orders Size Relations Second Second-Stage Allocations Stage Allocations $/Order $/Design $/MH $/Customer Cost Objects: Products, Customer Orders, Customers Unallocated
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Steps in designing ABC systems n Identify activities that consume resources.
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session4_part2_student (1-slide per pg) - method use in...

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