This website uses cookies to ensure you have the best experience.

Accounting Essay

1247 words - 5 pages

Part I: Activity-Based Costing
1. Calculate the unit manufacturing costs for simple desk and corner workstation under ABC system.
Table1: Calculation of the Indirect Costs Allocated to the Products |
Activity | Total activity cost(1) | Practical capacity(2) | Cost driver rate(3)= (1)/(2) | simple desk | corner workstation |
| | | | Usage(4) | Costs(3)*(4) | Usage (5) | Costs(3)*(5) |
Design and plan the production process | \$262,500 | 700 | \$375 | 40 | 15,000 | 120 | \$45,000 |
Make layered panels | \$861,500 | 172,300 | \$5 | 8520 | 42,600 | 17325 | \$86,625 |
Handle material | \$88,000 | 440 | \$200 | 60 | 12,000 | 45 | \$9,000 |
Setup machine | \$40,000 | 1,600 | ...view middle of the document...

50, which is higher than the cost \$935 under simple costing system (See Table3).
Identify the problem with simple costing and comment on how ABC system solve the problem
The simple costing system used only one allocation base, direct manufacturing labor hours, to allocate manufacturing overheads to different products. It assumes all products consume all resources in proportion to direct manufacturing labor hours. While the manufacturing processes and the products they produced are more complex. Sometimes, the direct manufacturing labor hour is not a cause-and-effect relationship with indirect cost. If we use it to allocate indirect cost, the indirect cost will be assigned inaccurately. As result, simple desk is over-cost while corner workstation is under-cost.
ABC system attempts to overcome this problem. ABC systems create homogeneous cost pools linked to different activities. For each activity-cost pool, ABC system seeks a cost allocation base that has a cause-and-effect relationship with costs in the cost pool. Therefore, the indirect costs will be assigned based on the consumption of resources to different products more accurately.
2. Based on your analysis for requirement 1, advise on the actions that EWF’s management team might take to improve the company’s profitability.
EWF’s management can use the information of the ABC system to make a better pricing decision to improve the company’s profitability. The manager may readjust the prices of simple desk and corner workstation.
Table4: Product profitability analysis(ABC system) |
| Simple desk(per unit) | Corner workstation(per unit) |
Full manufacturing costs | \$257.5 | \$1059.5 |
Markup (60%) | \$154.5 | \$635.7 |
EWF’s Selling price | \$412 | \$1695.2 |
Gross margin | 37.5% | 37.5% |
| | |
Competitors’ price | \$420 | \$1650 |
To set the prices of simple desk and corner workstation as manufacturing costs plus 60% markup (see Table4). The manager should sell simple desk at \$412 which is lower than the competitors’ price, \$420. It will increase the competitiveness and attract more customers. In addition, the gross margin is 37.5%. It is higher than the 35%, so it could cover all nonmanufacturing costs and earn a reasonable return for company.
As for the corner workstation, the price should be set at \$1695.2 in order to earn 60% markup. However, the price is higher than the competitors’ price, \$1650. Since the competition in the furniture industry is keen, the higher price, the more business will be lost. At least, EWF is required to set price same as the competitors’ \$1650 to stay competitive in the industry. Even though, it cannot earn 60% markup, but till has 35.79% [(1650-1059.5) ÷ 1650] gross margin, which is higher than 35%. It is better to sets price at \$1650 to earn few profits instead of setting higher price and earning high more gross profit per unit, but losing business.
In the conclusion,...

Other Essays Like Accounting

Accounting Essay

581 words - 3 pages as follows. Section II discusses the background of IFRS adoption in Europe. Section III reviews prior research and provides the basis for interpreting the market reaction to each event. Section IV describes our data and research design. Section V presents our empirical results, and Section VI presents sensitivity analyses. Section VII concludes. Literature review Debates about financial reporting and accounting standards can seem arcane

Accounting Essay

2152 words - 9 pages Introduction During the recent years the use of cloud based accounting information systems (AIS) in business organisations has been growing rapidly. In a survey conducted by Mimecast across the U.S. and Canada on cloud computing adoption by businesses, it has been found that 51 percent of the business ventures have already adopted cloud computing. The survey also indicated that 66 percent of enterprises are considering about the adoption of

Accounting

1517 words - 7 pages Every entity at the end of the accounting period will make financial record in order to determine the profit or loss during the period. Any income of the entity must be subject to the tax even though they are having profit or suffering loss. The accounting treatment for income taxes is determined by Australian Accounting Standards Board (AASB) 112 which adopts the tax effect method that incorporates both current and future tax consequences of

Accounting - 2404 words

2404 words - 10 pages management. Levitt specifically addresses five of the most popular tricks used by firms to smooth earnings. Secondly, Levitt outlines an eight part action plan to recover the integrity of financial reporting in the U.S. market place. What are the basic objectives of financial reporting? Generally accepted accounting principles provide information that identifies, measures, and communicates financial information about economic entities to reasonably

Accounting - 1018 words

1018 words - 5 pages iPhone at Apple, Inc.: The case provides students with an understanding of the criteria for revenue recognition and the role of accrual accounting in reflecting timing differences between cash receipts and product/service delivery, especially in situations where there are multiple deliverables. The case also enables students to reflect on (a) the use of supplementary non-GAAP disclosures, (b) the impact of accounting on firm value and (c

Accounting - 1993 words

1993 words - 8 pages Maytag they sales became higher for the company than in 2005. Week 4 Read ATC 7-5 in Chapter 7. This situation is very similar to what a company called Enron did several years ago. Use the internet or the university library to research exactly what Enron did in their accounting procedures and what eventually happened to the company. Post your findings and understanding of Enron’s story and respond to two other students’ postings with enhancements

Accounting - 687 words

687 words - 3 pages cost information. For companies using activity-based costing systems, a switch to activity-based budgeting makes sense. An activity-based budget is prepared by focusing on the budgeted costs of activities needed to produce and/or sell products and service instead of using the traditional approach. 7. Describe responsibility centers and responsibility accounting An organizational structure includes lines of responsibility within the

Accounting - 1173 words

1173 words - 5 pages . GAAP. “Generally Accepted Accounting Principles (GAAP) vary from International Financial Reporting Standards in that under GAAP rules, dividends received from a company's investing activities is reported as an "operating activity," not an "investing activity." (Accounting Info) Cash flows from interest and dividends received and paid are disclosed separately. Each is classified in a regular manner from date to date as operating, investing or

Accounting - 2946 words

2946 words - 12 pages Decorus Dea Notes to Consolidated Financial Statements Notes 1 Summary of Significant Accounting Policies Nature of Operations: The Decorus Dea (the “Company,” “we” or “us”) business is focused on providing high end, off the runway clothing and beauty products of superior quality and value. Our stores are located in four different states, Georgia, Florida, California and New York and consist of 56 stores. Our stores are located inside

Accounting - 4330 words

4330 words - 18 pages ACC 312 Fundamentals of Managerial Accounting Midterm Exam 1, Spring 2014 Test Form A SOLUTION Name ______________________________________________________________________ UTEID ____________________________________ Instructor ____________________________________________ Class Days ___________________ Time ______________________ DO NOT OPEN until given instructions to do so. Instructions Pages are numbered sequentially, including

Accounting - 1854 words

1854 words - 8 pages rate of 5.5%. However, because of stable employment experience, the company’s state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Williams Co.? a. \$35,100 b. \$24,600 c. \$12,000 d. \$8,400 11. In accounting for compensated absences, a company following the guidance in FASB Statement No. 43 would account for the liability using the: Cash

Related Papers

Accounting Essay 566 Words

566 words - 3 pages The Nature of Cost Accounting Cost accounting has been defined by many accounting scholars in various forums. There is no one watertight definition of cost accounting, but the various definitions all point to certain common aspects about the subject. Below are some definitions by certain authorities : “That part of management accounting which establishes budgets and standard costs and actual costs of operations, processes, departments or

Accounting Essay 727 Words

727 words - 3 pages The future of the accounting profession will be a period of increased change and continuous development. The industry will require new levels of business flexibility and competition will intensify because new industry entrants will outsource and automate accounting, audit, and tax professionals, especially for routine and lower-value services. Financial service companies, banks, software and Internet firms will soon offer an increasing amount of

Accounting Essay 1305 Words

1305 words - 6 pages AN OVERVIW OF CREATIVE ACCOUNTING AND WINDOW DRESSING Introduction: Every organization is expected to operate within the confinement of best practices or core competence at least, which has tendency of leading them to distinctive competence or exceptional practice. Since business operations center basically on finance, firms therefore take the accounting records of their organizations very serious as it determines their stay in industry or

Accounting Essay 762 Words

762 words - 4 pages Jack in the Box Unethical Accounting Business The article I have chosen to summarize highlights the accounting practices of a San Diego--based company, Jack in the Box, Inc. (NYSE: JBX). In addition to summarizing the article, I will discuss how the concepts of the article relate to my organization The Platinum Company Inc., including, making recommendations for improvement for my organization based on the article. Lastly, explain the