Management in Accounting

Management in Accounting

a) For Luxury

Step 1

Overhead cost per material dollar

For Setups = $ 3,080,000/ 672,000 = $ 4.58333

For Machine hours

= $ 3,080,000/ 1,848,000= $ 1.666666

For Outgoing shipments

= $ 3.080, 000/ 560,000 = $ 5.5

Step 2

For Setups

$672,000/ 8000 = $ 84

For Machine hours

1,848,000/8000 = $ 231

For Outgoing shipments

$560,000/8000 = $ 70

Step 3

For Setups = $84 x 4.58333 = $ 385

For Machine hours = $ 231 x 1.66666 = $ 385

For Outgoing shipments = $ 70 x 5.5 = 385.

Adding all these values = $ 1155

Per unit costs for luxury and deluxe would be same.

b) Activity Based Costing

Activity

Units of Cost Driversfor Luxury

Units of Cost Driversfor

Total

Unit Cost per Drivers for luxury

Unit Cost per Drivers for Exclusive

Setup

50

30

672,000

13440

22400

Machine Hours

16000

22,500

1,848,000

115

82

Outgoing shipments

100

75

560,000

5600

7466

Total

19155

29948

Per unit Cost for Luxury = 19155/8000 = $ 2.39

Per unit cost for exclusive = 29948/8000 = $ 3.75

c) Such a discount is not really advisable as firm would not be breaking even at that point at that time and thus there will be major loss in the profitability. The current price of $ 260 is just about fair and it should be persisted with.

d) Service companies that have services structure are having a hard time when they have to determine a suitable cost structure, it has to be said that some of the accounting standards are not really helping as they lack consistency. While some of the manufacturing services have been making use of the inventory, it can be seen that same method and logic cannot be applied by services. The cost of direct labours and direct materials so to speak are not major costs for some of the firms that are the part of the services industry. Thus these problems might make it hard for the services industry to employ activity based costing structure. ...