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-ACCT561 - Managerial Analysis




BYP17-2;MANAGERIAL ANALYSIS;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 in-house 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;Activities Cost Drivers Total 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#79354 | Written in 18-Jul-2015

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