Destin Brass Case Essay example

Machine hours, direct labor hours, and direct labor costs can all be used to allocate manufacturing overhead.

Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability?

Activity-based costing can be defined as the managers allocate costs depending on the quantity of resources a product or service consumed in the manufacture of goods and services. The activity based

Glaser Health Products of Ranier Falls, Georgia needs assistance in evaluating and classifying costs in order to implement an activity-based costing system. As stated in the case, these costs will be used for planning and control decisions rather than inventory valuation. The activity-based costing system will provide better allocation of Glaser’s overhead costs rather than a system to look at the cost drivers or the activities that their overhead costs comprise. Glaser’s general structure of an activity-based costing model should consist of cost

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

Direct labor assembly costs are, by their nature, directly traceable to individual products. Therefore the relevant cost driver for this cost is the number of Direct Assembly Labor Hours. The other 21 cost categories are indirect costs.

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

The materials used per unit of production, the Run labor hours and machine hours are provided in exhibit 2. The overhead expenses per unit of the product have been apportioned according to their percentage production and usage. (Drucker, 1999)

3. Under the new activity-based costing (ABC) system, compute the indirect cost allocation rates for each of the three activities:

We will examine the given data from the case and compare the unit costs from the company’s current costing system (traditional costing) and from activity-based costing. We will also highlight other qualitative data in consideration with the numerical factors that may result to a significant change on our recommendation.

This paper will discuss and analyze the concepts of Activity- Based Costing (ABC) in the manufacturing industry. Specifically, the document will focus on General Motors (GM), and the innovation of one of their manufacturing facilities who used ABC to predict energy usage in the manufacturing of automobiles. The study yielded a successful ABC predictive energy model which provided a structure for competitive advantage for the corporation.

Activity-based management, activity-based costing and continuous improvement, all these help in the improvement of the efficiency in manufacturing, better control of overhead costs and the accurate costing of products. With this in mind, We disagree with the advice that Chuck Davis, the firm’s controller, gave Leonard Bryner. The traditional way of costing produce average costs that severely overstated or understated. Without the accurate costs, the firm would not be able to price properly their products and that would be damaging to the firm. With activity-based costing and management, all costs are accounted for with the help activity-drivers and overhead costs are decreased. In turn, the costs that the firm has for their products are more accurate and pricing is much easier.

The significant shift in cost and profitability of flow controllers can be mainly explained by the considerably higher engineering and setup expenses (machines and labor). The latter arises due to the higher component number (10) of the flow controllers (resulting in higher complexity) which leads to a higher number of production runs and, thus, raises the number of setup hours. The number of production runs is further increased by the on average small batch sizes (see Table 4).

C. T. Horngren, A. Bhimani, S. M. Datar, G. Foster (2005), 'Activity-Based Costing', Management and Cost Accounting (Prentice Hall Europe), 345-363

The materials used per unit of production, the Run labor hours and machine hours are provided in exhibit 2. The overhead expenses per unit of the product have been apportioned according to their percentage production and usage.