Question

Mancnester lec n nology, inc. manuractures several aITe rent types от printea circuit Doaras; nowever, two oT tne oaras account Tor tne majority of the company's sales. The first of these boards, a television circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and price-sensitive. Manchester plans to sell 85,000 of the TV boards in 20x1 at a price of $510 per unit. The second high-volume product, a personal computer circuit board, is a recent addition to Manchester's product line. Because the PC board incorporates the latest technology, it can be sold at a premium price. The 20x1 plans include the sale of 60,000 PC boards at $855 per unit. Manchester's management group is meeting to discuss how to spend the sales and promotion dollars for 20x1. The sales manager believes that the market share for the TV board could be expanded by concentrating Manchester's promotional efforts in this area. In response to this suggestion, the production manager said, "Why don't you go after a bigger market for the PC board? The cost sheets that I get show that the contribution from a PC board is significantly larger than the contribution from a TV board. I know we get a premium price for the PC board. Selling it should help overall profitability." The cost-accounting system shows that the following costs apply to the PC and TV boards .5 h.15d 1.5 hr PC Board Tv Board Direct material Direct labor Machine time $249 4.0 hr. 1.5 hr 1.5 hr Variable manufacturing overhead is applied on the basis of direct-labor hours. For 20x1, variable overhead is budgeted at $2,540,000, and direct-labor hours are estimated at 385,875. The hourly rates for machine time and direct labor are $38 and $46, respectively. The company applies a material-handling charge at 10 percent of material cost. This material-handling charge is not included in variable manufacturing overhead. Total 20x1 expenditures for direct material are budgeted at $28,455,000 Andrew Fulton, Mancheste sales and promot involved in their production. Fulton has prepared the following schedule to help the management group understand this concept. ntroller, believes that before the management group proceeds with the discussion about allocating nal dollars to individual products, it might be worthwhile to look at these products on the basis of the activities Usi Fulton explained, "we can calculate an activity-based cost for each TV board and each PC board and then 9 ompareI material. The ma the ndard t we have bee ng. The only t that remains the same for both t methods he cost of direct t drivers will replace the direct labor, machine time, and overhead costs in the old standard cost figur Bu eted Annual Acti or Cos Os Numbe Number of boards Number of boards river river $ 1,000,000 540,000 1,080,000 $ 2,620,000 $ 972,000 136,000 1,240,000 192,000 $ 2,540,000 10,090,500 part ocureme Production scheduling Packaging and shipping Total f par 152,250 boards boards Machine setup Hazardous waste disposal Quality control General supplies Total Number of setups Pounds of waste Number of inspections Number of boards 367,500 setups 28,770 pounds 519, 750 inspections 152,250 boards Machine insertion Manual insertion Wave-soldering Total $ 3,400,000 10,000,000 364,000 $13,764,000 Number of parts Number of parts Number of boards 7,032,000 parts 2,939,000 parts 152,250 boards

Answer 1

Answer

Requirement 1

Identify at least four general advantages associated with activity-based costing.

1. Provides management with a more thorough understanding of complex product costs and product profitability for improved resource management and pricing decisions.

2. Allows management to focus on value-added and non-value-added activities, so that non-value-added activities can be controlled or eliminated, thus streamlining production processes

3. Highlights the relationship between activities and identifies opportunities to reduce costs (i.e., designing products with fewer parts in order to reduce the cost of the manufacturing process)

4. Provides a more appropriate means of charging overhead costs to products.

Requirement 2

Requirement 3