Brown and Davis is a law firm that is initiating an activity-based costing system. Sam Brown, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm. Classify each of the activities listed by Sam Brown as value-added or non-value-added. Activities Writing contracts and letters Attending staff meetings Taking depositions Doing research Traveling to/from court Contemplating legal strategy Eating lunch Litigating a case in court Entertaining a prospective client Value-added time Hours 1.42 0.49 Non-value-added 0.95 1.03 1.01 1.10 1.02 2.57 1.60 hours < < hours < < < How much was value-added time? (Round answer to 2 decimal places, e.g. 2.13.) < < > How much was non-value-added time? (Round answer to 2 decimal places, e.g. 2.13.)

Brown and Davis is a law firm that is initiating an activity-based costing system. Sam Brown, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm. Classify each of the activities listed by Sam Brown as value-added or non-value-added. Activities Writing contracts and letters Attending staff meetings Taking depositions Doing research Traveling to/from court Contemplating legal strategy Eating lunch Litigating a case in court Entertaining a prospective client Value-added time Hours 1.42 0.49 Non-value-added 0.95 1.03 1.01 1.10 1.02 2.57 1.60 hours < < hours < < < How much was value-added time? (Round answer to 2 decimal places, e.g. 2.13.) < < > How much was non-value-added time? (Round answer to 2 decimal places, e.g. 2.13.)

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 1TIF: Aaron McKinney is a cost accountant for Majik Systems Inc. Martin Dodd, Vice President of Marketing,...

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Dewey and Cheatam is a law firm that is initiating an activity-based costing system. Jim Dewey, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm. Classify each activity as either value-added or non-value-added. Activity Hours Writing contracts and letters 1.0 Attending staff meetings 0.5 Taking depositions 1.0 Doing research 1.0 Traveling to/from court 1.0 Contemplating legal strategy 1.0 Eating lunch 1.0 Litigating a case in court 2.5 Entertaining a prospective client 2.0 a. How much was value-added time? b. How much was non-value-added?
Salvatore LLC provides a wide variety of legal services and uses an activity-based costing system. Data from its activity-based costing system for all services follows: Activity cost pool Total cost Total activity Research $173,200 6200 Hours of paralegal time Client meetings $345,300 3900 Number of meeting hours Court filing fees $303,500 1600 Number of cases Document preparation $145,600 4900 Number of documents The cost pool activity rate for client meetings is Question 17 options: $88.54 per meeting hour. $7.08 per meeting hour. $58.29 per meeting hour. $27.94 per meeting hour.
Randy Harris, controller, has been given the charge to implement an advanced cost management system. As part of this process, he needs to identify activity drivers for the activities of the firm. During the past four months, Randy has spent considerable effort identifying activities, their associated costs, and possible drivers for the activities costs. Initially, Randy made his selections based on his own judgment using his experience and input from employees who perform the activities. Later, he used regression analysis to confirm his judgment. Randy prefers to use one driver per activity, provided that an R2 of at least 80 percent can be produced. Otherwise, multiple drivers will be used, based on evidence provided by multiple regression analysis. For example, the activity of inspecting finished goods produced an R2 of less than 80 percent for any single activity driver. Randy believes, however, that a satisfactory cost formula can be developed using two activity drivers: the number of batches and the number of inspection hours. Data collected for a 14-month period are as follows: Required: 1. Calculate the cost formula for inspection costs using the two drivers, inspection hours and number of batches. Are both activity drivers useful? What does the R2 indicate about the formula? 2. Using the formula developed in Requirement 1, calculate the inspection cost when 300 inspection hours are used and 30 batches are produced. Prepare a 90 percent confidence interval for this prediction.
Joseph Fox, controller of Thorpe Company, has been in charge of a project to install an activity-based cost management system. This new system is designed to support the companys efforts to become more competitive. For the past six weeks, he and the project committee members have been identifying and defining activities, associating workers with activities, and assessing the time and resources consumed by individual activities. Now, he and the project committee are focusing on three additional implementation issues: (1) identifying activity drivers, (2) assessing value content, and (3) identifying cost drivers (root causes). Joseph has assigned a committee member the responsibilities of assessing the value content of five activities, choosing a suitable activity driver for each activity, and identifying the possible root causes of the activities. Following are the five activities with possible activity drivers: The committee member ran a regression analysis for each potential activity driver, using the method of least squares to estimate the variable and fixed cost components. In all five cases, costs were highly correlated with the potential drivers. Thus, all drivers appeared to be good candidates for assigning costs to products. The company plans to reward production managers for reducing product costs. Required: 1. What is the difference between an activity driver and a cost driver? In answering the question, describe the purpose of each type of driver. 2. For each activity, assess the value content and classify each activity as value-added or non-value-added (justify the classification). Identify some possible root causes of each activity, and describe how this knowledge can be used to improve activity performance. For purposes of discussion, assume that the value-added activities are not performed with perfect efficiency. 3. Describe the behavior that each activity driver will encourage, and evaluate the suitability of that behavior for the companys objective of becoming more competitive.
Walsh & Coggins, a professional accounting firm, collects cost information about the services they provide to their clients. Describe the types of cost data they would collect and explain the importance of analyzing this cost data.
Tom Young, vice president of Dunn Company (a producer of plastic products), has been supervising the implementation of an activity-based cost management system. One of Toms objectives is to improve process efficiency by improving the activities that define the processes. To illustrate the potential of the new system to the president, Tom has decided to focus on two processes: production and customer service. Within each process, one activity will be selected for improvement: molding for production and sustaining engineering for customer service. (Sustaining engineers are responsible for redesigning products based on customer needs and feedback.) Value-added standards are identified for each activity. For molding, the value-added standard calls for nine pounds per mold. (Although the products differ in shape and function, their size, as measured by weight, is uniform.) The value-added standard is based on the elimination of all waste due to defective molds (materials is by far the major cost for the molding activity). The standard price for molding is 15 per pound. For sustaining engineering, the standard is 60 percent of current practical activity capacity. This standard is based on the fact that about 40 percent of the complaints have to do with design features that could have been avoided or anticipated by the company. Current practical capacity (the first year) is defined by the following requirements: 18,000 engineering hours for each product group that has been on the market or in development for five years or less, and 7,200 hours per product group of more than five years. Four product groups have less than five years experience, and 10 product groups have more. There are 72 engineers, each paid a salary of 70,000. Each engineer can provide 2,000 hours of service per year. There are no other significant costs for the engineering activity. For the first year, actual pounds used for molding were 25 percent above the level called for by the value-added standard; engineering usage was 138,000 hours. There were 240,000 units of output produced. Tom and the operational managers have selected some improvement measures that promise to reduce non-value-added activity usage by 30 percent in the second year. Selected actual results achieved for the second year are as follows: The actual prices paid per pound and per engineering hour are identical to the standard or budgeted prices. Required: 1. For the first year, calculate the non-value-added usage and costs for molding and sustaining engineering. Also, calculate the cost of unused capacity for the engineering activity. 2. Using the targeted reduction, establish kaizen standards for molding and engineering (for the second year). 3. Using the kaizen standards prepared in Requirement 2, compute the second-year usage variances, expressed in both physical and financial measures, for molding and engineering. (For engineering, explain why it is necessary to compare actual resource usage with the kaizen standard.) Comment on the companys ability to achieve its targeted reductions. In particular, discuss what measures the company must take to capture any realized reductions in resource usage.
Aaron McKinney is a cost accountant for Majik Systems Inc. Martin Dodd, Vice President of Marketing, has asked Aaron to meet with representatives of Majik Systems major competitor to discuss product cost data. Martin indicates that the sharing of these data will enable Majik Systems to determine a fair and equitable price for its products. Would it be ethical for Aaron to attend the meeting and share the relevant cost data? Explain your answer.
Consumer Focus is a marketing research firm that organizes focus groups for consumerproduct companies. A Consumer Focus Staff member attends each session to ensure that all the logistical aspects run smoothly”In light to the above statement, classify each of the following cost items as:a. Direct or Indirect (D or I) costs with respect to each individual focus group.b. Variable or Fixed (V or F) costs with respect to how the total costs of Consumer Focus change as the number of focus groups conducted changes. (If in doubt, select on the basis of whether the total costs will change substantially if there is a large change in the number of groups conducted.)You will have two answers (D or I; V or F) for each of the following items followed by a short interpretation note. Use the sample answer table and continue from Cost Item BCost ItemA. Payment to individual in each focus group to provide comments on new products.B. Annual subscription of Consumer Focus to Consumer Reports magazine.C.…
Required information [The following information applies to the questions displayed below.] Data Performance, a computer software consulting company, has three major functional areas: computer programming, information systems consulting, and software training. Carol Bingham, a pricing analyst, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Carol is considering three different methods of the departmental allocation approach to allocate overhead costs: the direct method, the step method, and the reciprocal method. She assembled the following data from the two service departments, information systems and facilities: a. b. Budgeted overhead (base) Information Systems (computer hours) Facilities (square feet) C. Service Departments Information Systems $ 368,000 240 Direct Method Step Method (Information Systems Goes First) Step Method (Facilities Goes First) Reciprocal method Computer…
Baldwin Enterprises has two service departments, Personnel and Legal, and two operating divisions, Eastern and Western. Personnel costs are allocated on the basis of employees and Legal costs are allocated on the basis of hours. A summary of Baldwin operations follows: Employees Hours Department direct costs Required A Complete this question by entering your answers in the tabs below. Department costs Personnel allocation Legal allocation Total costs Costs Department costs Legal allocation Personnel allocation Total costs Personnel Required B Required C Legal Required: a. Allocate the cost of the service departments to the operating divisions using the direct method. b. Allocate the cost of the service departments to the operating divisions using the step method. Start with Legal. c. Allocate the cost of the service departments to the operating divisions using the reciprocal method. From Total Allocate the cost of the service departments to the operating divisions using the direct…
The activity-based costing (ABC) system has been used by manufacturing companies for a long period of time. Recently, the ABC system has been used by banks, insurance companies, not-for-profit organizations, government agencies, and service companies. Assume that you were hired as a cost accountant to develop a plan to implement the ABC system for one of these service organizations. Create an ABC system development plan, including detailed steps needed to effectively implement the system. Then present the plan in the discussion. Response should include: A brief background on the organization's main activities. Whether there will be any limitation on implementing the ABC system in the organization selected.
Garrell Corporation is conducting a time-driven activity-based costing study in its Customer Support Department. The company has provided the following data to aid in that study: Time-driven activity rate (cost per unit of activity) Activity cost pool: Receiving Calls Resolving Issues Settling Disputes Cost Object Data: Number of calls received Number of issues resolved Number of disputes settled Customer P 31 17 1 $5.46 $8.58 $13.26 Customer Q 21 10 Required: Using time-driven activity-based costing, determine the total Customer Support Department cost assigned to cach customer.