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ACC 561? Ideal Manufacturing Company




Question;ACC 561?Managerial Perspective Analysis - Ideal Manufacturing Company;MANAGERIAL ANALYSIS;BYP17-2 Ideal Manufacturing Company of Sycamore, Illinois, has supported;a research and development (R&D) department that has for many years;been the sole contributor to the company?s new farm machinery products.;The R&D activity is an overhead cost center that provides services;only to in-house manufacturing departments (four different product;lines), all of which produce agricultural/farm/ranch related machinery;products. The department has never sold its services outside, but;because of its long history of success, larger manufacturers of;agricultural products have approached Ideal to hire its R&D;department for special projects. Because the costs of operating the;R&D department have been spiraling uncontrollably, Ideal?s;management is considering entertaining these outside approaches to;absorb the increasing costs. But, (1) management doesn?t have any cost;basis for charging R&D services;to outsiders, and (2) it needs to gain control of its R&D costs.;Management decides to implement an activity-based costing system in;order to determine the charges for both outsiders and the inhouse users;of the department?s services.;R&D activities fall into four pools with the following annual costs.;Market analysis $1,050,000;Product design 2,350,000;Product development 3,600,000;Prototype testing 1,400,000;Activity analysis determines that the appropriate cost drivers and their usage for the four activities are;Total;Activities Cost Drivers Estimated Drivers;Market analysis Hours of analysis 15,000 hours;Product design Number of designs 2,500 designs;Product development Number of products 90 products;Prototype testing Number of tests 500 tests;Instructions;(a) Compute the activity-based overhead rate for each activity cost pool.;(b) How much cost would be charged to an in-house manufacturing;department that consumed 1,800 hours of market analysis time, was;provided 280 designs relating to 10 products, and requested 92;engineering tests?;(c) How much cost would serve as the basis for pricing an R&D bid;with an outside company on a contract that would consume 800 hours of;analysis time, require 178 designs relating to 3 products, and result in;70 engineering tests?;(d) What is the benefit to Ideal Manufacturing of applying;activity-based costing to its R&D activity for both in-house and;outside charging purposes?


Paper#40065 | Written in 18-Jul-2015

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