Reference no: EM131181432
Alternative Costing Method
Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customers with collapsible umbrellas imprinted with its logo. The management at Hampshire is currently working out a deal with the touring company to produce 3,000 collapsible umbrellas and believes it can sell those umbrellas for $14.00 each. Here are the costs that can be directly traced to this special order:
Direct Materials: $9,300
Direct Labor Hours: 600
Hourly Rate of Direct labor: $8.00
In the traditional costing approach, overhead is applied at the rate of $24.60 per labor hour. This expansion in production will add additional overhead costs. The total overhead costs (assuming production of the stick and collapsible umbrellas) to include the cost pools and cost drivers are provided in Table 2.
An alternative costing method that might benefit Hampshire is the implementation of activity-based costing (ABC). Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information:
|
Stick
|
Collapsible
|
|
Units Sold
|
60,000
|
3,000
|
|
Selling Price
|
$12.50
|
$14.00
|
|
Direct Material Cost per Unit
|
$3
|
$3.10
|
|
Direct Labor Cost per Hour
|
$7.50
|
$8.00
|
|
Variable Manufacturing Overhead
|
$0.40
|
$0.40
|
|
Variable Selling Costs
|
$1.10
|
$1.10
|
|
Labor Hours per Unit
|
0.2
|
0.2
|
|
Sales Orders
|
120
|
1
|
|
Purchase Orders
|
50
|
3
|
|
Production Runs
|
45
|
6
|
|
Material Moves
|
86
|
10
|
|
Machine Setups
|
130
|
6
|
|
Machine Hours
|
525
|
32
|
|
Inspections
|
200
|
10
|
|
Shipments
|
60
|
3
|
Table 1: Direct Cost Information and Activities
|
Activity
|
Activity Cost
|
Activity Cost Driver
|
|
Order Processing
|
$35,000
|
Number of Sales Orders
|
|
Purchasing
|
$36,000
|
Number of Purchase Orders
|
|
Material Handing
|
$28,000
|
Material Moves
|
|
Machine Setup
|
$14,000
|
Machine Setups
|
|
Production
|
$99,000
|
Production Runs
|
|
Assembly
|
$80,000
|
Machine Hours
|
|
Inspecting
|
$11,000
|
Number of Inspections
|
|
Shipping
|
$7,500
|
Number of Shipments
|
Table 2: Activity Cost Pools and Cost Drivers
Another alternative to traditional costing and ABC is time-driven activity-based costing (TDABC). You will need to determine which of these three methods would be the best approach for the Hampshire Company. The following article may assist you in your analysis: Time-Driven Activity-Based Costing. Additionally, you may want to use the Shapiro Library to conduct further research on the three methods. You will need to defend your position when answering the prompts for the written portion of this section.
Using the information provided above, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section IV:
1. Calculate the allocation rates for each cost driver using ABC.
2. Use the traditional costing approach to calculate the total cost and the unit cost of the stick and collapsible umbrellas.
3. Use ABC to compute the total costs and the unit cost for the stick and collapsible umbrellas.
4. Compute the difference between the product cost per stick and collapsible umbrellas using the unit cost that you computed with the traditional approach and the one that you computed using ABC.
|
Do you know why this hardship occurred
: Do you know why this hardship occurred? Would you characterize this unemployment as frictional, structural, or cyclical?
|
|
Disadvantages of hiring home country personnel
: In staffing a multinational organization for service outside the IC home country, what are some advantages and disadvantages of hiring home country personnel?
|
|
Largest market share in the relevant product market
: A market leader has the largest market share in the relevant product market. Name a product that is a market leader and briefly describe, in your opinion, why that product has become the market leader in that product category or industry. Briefly des..
|
|
What is the labor force participation rate
: What is the labor force participation rate and how is it calculated? How has it changed in recent decades for men and women in the United States?
|
|
Alternative costing method
: Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customer..
|
|
How should companies evaluate suppliers
: In the last decade strategic sourcing has become a hot topic as companies have looked outside of the United States to meet their needs. Whether a companies is looking to source components outside the United States or domestically, how should companie..
|
|
New premium burger through social media
: You are the marketing director for a McDonalds. The company has decided to introduce its new premium burger through social media. Write a short message that you would post to a social media site and name which social media channel would be the best t..
|
|
Calculate the labor force participation rate
: The small country of Nederland counts its unemployed using the same methods as the United States. Of the population of 350 people, 70 are under age 16, 190 are employed in paid work, and 80 are adults who are not doing paid work or looking for wor..
|
|
Manager of change follows kotter checklist
: This manager of change follows Kotter's checklist like a recipe, and will first establish a sense of urgency, and expect the others in the team to follow in suit. In this case, the manager will assume that the new change is going to be better, and..
|