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Acc 561 - Ideal Manufacturing Company: Managerial Analysis

Autor:   •  July 16, 2016  •  Coursework  •  699 Words (3 Pages)  •  1,030 Views

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Ideal Manufacturing Company: Managerial Analysis

Accounting - ACC/561

February 1, 2016

Jason See


 Ideal Manufacturing Company: Managerial Analysis

The Research and Development (R & D) department at Ideal Manufacturing Company, in Sycamore Illinois, provides market analysis, product design, product development and prototype testing for its internal departments. The department is incurring higher cost for providing services to its internal customer the department is thinking of providing its services to customers outside of the company. The R & D department needs to know if they were to provide these services to external customers, will the venture be beneficial for them to invest in. For the R & D department to know if providing their services to external customer is beneficial they will need to perform a costing analysis on their overhead cost in the department. The R & D department will be using the activity-based costing (ABC), which is an “approach for allocating overhead cost” (Kimmel, Weygandt, & Kieso, 2011, section 17-1) based on multiple activity pools. These pools are driven by its cost drivers such as hours, designs, products, and engineering testing. Below are the total estimated dollars that the company can make yearly from each of their activity pool and the total estimated numbers for their cost drivers.

The R & D department will perform a costing analysis using the activity-based costing to find the overhead rate per unit for each of the activity pools. They also will use estimated numbers to find the total estimated dollars for their internal customers and external customers. Finally, the R & D department will research the benefits of using the activity-based costing.

Activity pools

Total estimated dollars

Market Analysis

$1,050,000

Product Design

$2,350,000

Product Development

$3,600,000

Prototype Testing

$1,400,000

Totals for all activities

$8,400,000

Activity pools

Cost drivers

Total estimated numbers

Market Analysis

analysis hours

15,000

Product Design

number of designs

2,500

Product Development

number of products

90

Prototype Testing

number of tests

500

Activity-Based Overhead Rate

The R & D department found the overhead rate per unit by dividing each of the estimated totals of the activity pool by each of the estimated total numbers of cost drivers; below are the numbers.

Activity pools

Total estimated dollars

Market Analysis

$70 per hour

Product Design

$940 per design

Product Development

$40,000 per product

Prototype Testing

$2,800 per test

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