Cleaning and Repairs Overhead Resource consumption Cost Drivers Laura has

Cleaning and repairs overhead resource consumption

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Cleaning and Repairs Overhead (Resource)-consumption Cost Drivers Laura has further analyzed the cost structure, to determine how the overhead (resource) costs could be allocated to the eight activities identified above. On the advice of the cost consultant, she determined that all costs in the general and administrative account could be allocated to the general and administrative activity. Moreover, most (90%) of the costs in the bottling machine account could be allocated to the bottling activity, and the remainder to the receiving and inspecting activity. Determining how the other processing costs could be related to the activities is not as simple, but after some careful study the following estimates were made for the other processing costs account: % Usage of Other Activities Using Other Processing Costs Processing Costs Milking 30% Separating/Pasteurizing/Homogenizing 15% Mixing 15% Bottling 25% Warehousing 10% G&A 0% Receiving and Inspecting Ingredients 0% Cleaning and Repairs 5% Total 100% The other facilities cost account includes the costs of maintaining the warehouse and milking barn, and is allocated to the activities on the basis of square feet. Square feet is therefore the resource-consumption cost driver for the other facilities cost account, which is one of Maple Hill’s overhead (resource) accounts. Activities Square Ft Milking 10,000 Separating/Pasteurizing/Homogenizing 2,000 Mixing 1,000 Bottling 1,500 Warehousing 12,500 G&A 2,000 Cleaning and Repairs 1,000 Total 30,000 Blocher,Stout,Juras,Cokins: Cost Management 6e 4 The McGraw Hill Companies, Inc, 2013
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Activity-consumption Cost Drivers After some additional study, it was decided that the best way to allocate the costs of each activity to the products was to use the following activity-consumption drivers: Activities Activity-consumption Cost Driver Milking Number of bottles produced Separating/Pasteurizing/Homogenizing Machine Hours, Separating Mixing Machine Hours, Mixing Bottling Machine Hours, Bottling Warehousing Labor Hours, Warehousing G&A Number of Invoices Receiving and Inspecting Ounces Cleaning and Repairs Labor Hours, Clean and Repair Required 1. Assess the competitive environment of Maple Hill Dairy Farm and determine what you think is or should be Maple Hill’s competitive strategy, and explain why. Evaluate Laura’s plan to move from glass bottles to plastic and paper containers. 2. Determine the unit costs for each of the five products given the available information. How could you improve on these calculations; what additional information would your request and how would you use it?
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