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Part Three Charles Jackson, the accounting manage...




Part Three Charles Jackson, the accounting manager at Big Al?s , has just returned from a conference on activity-based costing in Seattle and thinks big Al?s should consider implementing an ABC system at the beginning of Year 2. Charles has identified five primary activities taking place in the production facility at Big Al?s, has traced overhead costs to each activity, and has identified a cost driver for each activity as follows: Estimated Year 2 Overhead Costs Activity Monthly Overhead Cost Cost Driver Material delivery /handling $4,620 # of shipments Assembly of pizzas $5,670 Direct Labor hours Packaging $1,260 Number of pizzas Storage of materials $3,150 Refrigerator space Quality inspections $2,100 Number of inspections Big Al?s gets material for the veggie pizzas twice per week so the veggies can remain fresh and crisp until used in production. Veggie pizzas are also thicker, due to the height of the toppings, than a one topping meat pizza, so more refrigerator space is estimated to be needed. Big Al?s has also determined that meat pizza?s need to be inspected more frequently for quality control due to the much higher volume of production. Charles has estimated the activity for each cost driver as follows: Meat Pizzas Veggie Pizzas Total Number of material shipments 52 108 160 Direct Labor Hours 87,500 7,000 94,500 Number of Pizzas 352,800 25,200 378,000 Refrigerator space (cubic feet) 2,500 500 3,000 Number of inspections 80,000 4,000 84,000 Required A. Using the overhead activity categories identified above, classify Big Al?s overhead costs as unit-level, batch-level, product-level, or facility level. B. Using the preceding activities and cost drivers, calculate a predetermined overhead rate for each activity. C. Using ABC, how much estimated overhead would be allocated to a meat pizza and to a veggie pizza? D. Compare the estimated overhead allocation using ABC to the estimated overhead allocation using direct labor hours. E. What are some of the advantages and disadvantages of using ABC in this case? F. Would you suggest that Big Al?s adopt ABC system? Why? G. Does the information provided by the ABC system give you some insight into areas of cost reduction? What areas have the greatest potential for cost reduction, and what are the potential impacts on the business from these cost reductions? I am in need of help with this please respond to yvonnevand Thank you! If you need previous workings on this case let me know and I can send what I have.,Thank you, I await your response. Yvonne V.


Paper#9421 | Written in 18-Jul-2015

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