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1. Overhead Allocation and Primary Assumptions ?...




1. Overhead Allocation and Primary Assumptions ? Complete Sheet 1 (4 points) a. Use the resource consumption percentages and budgeted overhead costs to perform ?Stage-One? allocations from functional to activity cost pools. Use formulas. 2. Product Costing and Profitability Computations ? Complete Sheet 2 (5 points) a. Compute CDRs (activity rates) for the facility-wide and activity-based cost pools. Using the CDRs, allocate overhead from ABC cost pools to product lines in the ?Stage-two? overhead allocation. Use reference links to CDRs in Sheet 2 and appropriate budget cells from Sheet 1 to complete the stage-two allocation. b. Determine product line and average unit costs under both traditional and ABC costing systems. Note: Remember that ONLY production-related overhead costs are to be used for the traditional costing system. c. Compute total and unit product margins under the two costing systems. 3. Customer Profitability Computations ? Complete Sheet 3 (5 points) a. Reference CDRs from Sheet 2 and use them to compute customer profitability under both the current and ABC costing systems. 4. Profitability Analysis (6 points) Analyze product profitability under traditional costing and ABC. a. Does PWC appear to be losing money on either or both products? Explain. b. If the profitability is different across the costing systems, which system do you believe? Why? c. Explain the difference in total margins across traditional and ABC costing systems. Be specific. Analyze customer profitability under traditional costing and ABC. d. Does PWC appear to be losing money on either or both customers? Explain. e. What recommendation(s) can you provide to PWC management to better manage customer profitability? Be specific. 5. What-if Analysis (4 points) Open your previously saved spreadsheet file. You should only need to change selected numbers on the data input sheet to complete this item. a. Mr. Peach is considering an investment to further automate the factory by installing a computer integrated manufacturing (CIM) system. This system would increase the annual fixed costs of factory equipment depreciation, engineering and computer programmer salaries. However, improved efficiency is expected to yield revenue enhancements, and some cost reductions as shown below. Adjust the following input data on the source sheet (Sheet 1 ? highlighted yellow cells), as indicated below (it may be helpful to save your adjusted spreadsheet under a different filename). ? Increase engineers' costs to $78,200; computer programmers? costs to $73,600; and equipment depreciation costs to $205,000. Decrease inspector cost to $23,500. ? Increase unit production of standard windows by 37% (to 16,440). ? For standard windows Increase machine hours (to 23,700) and decrease inspections (to 52). For custom windows: Decrease machine hours (to 2,600) and inspections (to 92). b. Explicitly identify costs and benefits (include qualitative considerations) of the proposed upgrade. (Hint: What is the differential margin or operating income associated with the upgrade)? Should management complete the investment? What other information would you want to make your recommendation? Explain and support your answers. 6. Cost System Assessment (6 points) a. Succinctly, but completely, describe the existing cost system used by PWC. Be specific and thorough by considering: cost accumulation, allocation, measurement, and reporting format. b. What alternatives exist to improve the accuracy of traditional costing systems? Explain and be specific. c. Is an ABC system always the best solution for an organization? State relevant factors and tradeoffs PWC should consider in determining whether or not an ABC system is appropriate. Explain and be specific.


Paper#4593 | Written in 18-Jul-2015

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