You have a new client, her name is Dorothy Buck. She is interested in diversifying her...
You have a new client, her name is Dorothy Buck. She is interested in diversifying her company; it is a small manufacturing company that assembles and packages many products by hand. She wants to automate the company and her projections indicate that the company will once again be profitable within two to three years. During your review of the company's records, you discovered that the company currently uses direct labor hours to allocate overhead to its products. Dorothy plans to continue using this approach due to its simplicity.
1. Write a memorandum to Dorothy that addresses whether or not direct labor should continue to be used as an allocation base for overhead and why.
2. Will the use of Activity-Based Costing help the company, how?
3. What insights could ABC provide regarding the company's profitability.
Homework Answers
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You have a new client, her name is Dorothy Buck. She is
interested in diversifying her...
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Patterson Manufacturing Background Columbia invests in family-owned businesses with a strong presence in niche markets
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Patterson Manufacturing Background Columbia invests in family-owned businesses with a strong presence in niche markets....
Patterson Manufacturing
Background
Columbia invests in family-owned businesses with a strong
presence in niche markets. Columbia retains existing management and
local business practices but provides centralized services, such as
finance, accounting, insurance, and corporate-level management.
Patterson has remained profitable since the acquisition, but its
return on investment has been declining.
Your first stop at the Patterson complex is a meeting with the
controller. He provides some additional background:
“Jessica, like her predecessors, spent most of her time with
customers developing...
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Case 11-3: Carmichael Corporation Discussion Questions: What impact will Brisson’s decision to manufacture MS-7 have on...
Case 11-3: Carmichael Corporation
Discussion Questions:
What impact will Brisson’s decision to manufacture MS-7 have on
the cost structure of Stimgro for Carmichael?
Should Amanda Tellford do anything at this stage?
What alternatives are open to Amanda Tellford?
What are the advantages and disadvantages of each
alternative?
What is the cost structure for Stimgro and the margin?
Since Stimgro is very profitable, with a good margin, why does
it matter if the cost of MS-7 increases?
Main Question:
As Amanda...
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SANTOS Award: 2.50 points McNulty, Inc., produces desks and chairs. A new CFO has just been hired and announces a new policy that if a product cannot eam a margin of at least 25 percent, it will be dropped. The margin is computed as product gross profit divided by reported product cost. Manufacturing overhead for year 1 totaled $944,000. Overhead is allocated to products based on direct labor cost. Data for year 1 show the following Sales revenue Direct materials...
Several years after reengineering its production process, Biltmore Corporation hired a new controller, Christine Erickson. She developed an ABC system very similar to the one used by Biltmore's chief rival. Part of the reason Erickson developed the ABC system was because Biltmore's profits had been declining even though the company had shifted its product mix toward the product that had appeared most profitable under the old system. Before adopting the new ABC system, Biltmore had used a plantwide overhead rate...
Patterson Manufacturing
Background
Columbia invests in family-owned businesses with a strong
presence in niche markets. Columbia retains existing management and
local business practices but provides centralized services, such as
finance, accounting, insurance, and corporate-level management.
Patterson has remained profitable since the acquisition, but its
return on investment has been declining.
Your first stop at the Patterson complex is a meeting with the
controller. He provides some additional background:
“Jessica, like her predecessors, spent most of her time with
customers developing...
Case 11-3: Carmichael Corporation
Discussion Questions:
What impact will Brisson’s decision to manufacture MS-7 have on
the cost structure of Stimgro for Carmichael?
Should Amanda Tellford do anything at this stage?
What alternatives are open to Amanda Tellford?
What are the advantages and disadvantages of each
alternative?
What is the cost structure for Stimgro and the margin?
Since Stimgro is very profitable, with a good margin, why does
it matter if the cost of MS-7 increases?
Main Question:
As Amanda...
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