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ACa6111_Fall 2013_Assignment 2 Case2:_Kiku Yamamoto_ABC Costing




Question;ACa6111_______________________Fall 2013___________________________Assignment;2;Case2: ABC Costing;Kiku Yamamoto is the controller of;Watanabe, Inc., an electronic controls company located in Osaka. She recently;attended a seminar on activity-based costing (ABC) in Tokyo. Watanabe's;traditional cost accounting system has three cost categories: direct materials;direct labor, and indirect produc?tion costs. The company allocates indirect;production costs on the basis of direct labor cost. The fol?lowing is the 20X0;budget for the automotive controls department (in thousands of Japanese yen);Direct materials;?;60,000;Direct labor 35,000;Indirect production costs 24,500;Totalcost;?119,500;After Ms. Yamamoto attended the seminar;she suggested that Watanabe experiment with an ABC sys?tem in the Automotive;Controls Department. She identified four main activities that cause indirect;pro?duction costs in the department and selected a cost driver to use as a;cost-allocation base for each activ?ity as follows;Activity Cost-Allocation Base Predicted 20X0 Cost (?000);Receiving;Direct materials cost;Assembly;Number of control units;Quality control;QC hours;Shipping;Number of boxes shipped;TOTAL;?;4,800;13,800;1,800;4,100;?24,500;In20X0 the Automotive Controls Department expects to;produce 92,000 control units, use 600 quality control hours, and ship 8,200;boxes.;1.;Explain how Watanabe, Inc., allocates its indirect production costs;using its traditional cost sys?tem. Include a computation of the allocation;rate used.;2.;Explain how Watanabe, Inc., would allocate indirect production costs;under Ms. Yamamoto's proposed ABC system. Include a computation of all the;allocation rates used.;3.;Suppose Watanabe prices its products at 30% above total production cost.;An order came in fromNissan for 5,000 control units. Yamamoto estimates;that filling the order will require?8,000,000of direct materials cost and?2,000,000 of direct;labor, It will require 50 hours of QC inspectiontime and will be shipped in 600 boxes,it. Compute the price charged for the;5,000 control units if Watanabe uses its traditional cost accounting system.;b. Compute the price charged for the 5,000;control units if Watanabe uses the ABC system pro?posed by Ms. Yamamoto.;4. Explain why costs are different in the two;costing systems. Include an indication of which costs you think arc most;accurate and why.


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