A tech support department has been established to help customers download music

A tech support department has been established to

This preview shows page 78 - 81 out of 81 pages.

A tech support department has been established to help customers download music to their devices. The CAPlaye rs are sold and supported only through the world’s 1,000 most exclusive golf courses. The golf pros at these courses usually call once to learn the product and require no further assistance. The GLASSESong units are sold over the internet, and individual purchaser average one call per unit sold.
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78 IDENTIFY ACTIVITIES After carefully studying GAME Company, the consultant identified four unique activities. Each of these activities was a significant consumer of resources and generated substantial costs. The robotics function related to the operation of the highly automated assembly line. A large part of the cost of robotics was tied directly to the number of units produced. Production setup was a batch level activity. The company was required to set up the assembly process for each batch of caps and glasses. Tech support was driven by the number of customers. Each purchaser of the glasses was identified as a “customer” and each golf course was identified as a “customer.” The activity driver for product design is the number of products. ALLOCATE COSTS Of the total costs, direct material and direct labor were traceable directly to the product cost object. The other costs were either deemed attributable to one of the four activities, or otherwise not allocated. The following spreadsheet was prepared based on careful analysis, interviews, and meetings. Columns C, E, G, and I show the percentage of each cost category attributable to each of the four activities. Column K reveals the proportion of each cost that is not allocated. The costs from Column B are multiplied by the percentages to make allocations to each cost pool. For example, 12% of the total indirect material is allocated to robotics ($100,000 from cell B7 X 12% from cell C7 = $12,000 found in cell D7). This process is repeated for each cost and results in the allocations shown.
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79 DETERMINE PER-ACTIVITY RATES The total cost for each activity pool is divided by the activity quantity metric. For example, robotics cost $2,200,000 and 200,000 units were produced. Thus, this activity cost is $11.00 per unit. This calculation is repeated for each activity cost pool, and is summarized in the following schedule. APPLY COSTS TO COST OBJECTS The final step is to analyze results. The top portion of the following analysis applies the per-activity cost information to show how the total cost of CAPlayer is less than the total cost of GLASSESong. The lower portion compares costs and revenues to determine product profitability. Unallocated cost is
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80 included in the total column only; it is important, but not tied to either product. Product profitability is portrayed differently under alternative costing methods. Traditional costing applied overhead based on direct labor, which is a small portion of the environment. The point is that skill is required to interpret any costing information.
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