Variable costs and activity bases in decision making
Sales volume has been dropping at Pinnacle Publishing Company. During this time, however, the Shipping Department manager has been under severe financial constraints. The manager knows that most of the Shipping Department's effort is related to pulling inventory from the warehouse for each order and performing the paperwork. The paperwork involves preparing shipping documents for each order. Thus, the pulling and paperwork effort associated with each sales order is essentially the same, regardless of the size of the order. The Shipping Department manager has discussed the financial situation with senior management. Senior management has responded by pointing out that sales volume has been dropping, so that the amount of work in the Shipping Department should be dropping. Thus, senior management told the Shipping Department manager that costs should be decreasing in the department.
The Shipping Department manager prepared the following information:
Given this information, how would you respond to senior management?
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Survey of Accounting (Accounting I)
- Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,320,000 based on production of 300,000 handheld consoles and 105,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home Total Direct labor $ 1,250,000 $ 400,000 $ 1,650,000 Materials $ 720,000 $ 657,000 $…arrow_forwardMaglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,334,000 based on production of 320,000 handheld consoles and 113,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home Total Direct labor $ 1,285,500 $ 382,000 $ 1,667,500 Materials 800,000…arrow_forwardMaglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to Investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1.337,000 based on production of 310,.000 handheld consoles and 95,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home $409,000 696,000 Total $1,671,250 1,476,000 Direct labor $1,262,250 780,000 Materials Management has determined that overhead costs are…arrow_forward
- Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,125,000 based on production of 310,000 handheld consoles and 110,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home Total Direct labor $ 1,022,250 $ 384,000 $ 1,406,250 Materials 700,000 712,000 1,412,000…arrow_forwardAssume you are the warehouse manager for Vinnies Vinyls, a multi-location business specializing in vinyl records. Vinniess operates under a cost-based transfer structure and the warehouse supplies all stores with the records. The stores can purchase records only from the warehouse, and the warehouse can only sell to Vinnies stores. The manager of the West store has some concerns relating to the stores financial performance and has asked for your help analyzing transfer costs. After calculating the operating income in dollars and the operating income percent, analyze the following financial information to determine costs that may need further investigation. (Hint: it may be helpful to perform a vertical analysis.)arrow_forwardSuppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter: Sales orders Sales calls Service calls Average order size Manufacturing cost/unit Customer costs: Processing sales orders Selling goods Servicing goods Sales (in units) Sales Allocation Ordering costs Selling costs Service costs Total 9.23 per unit JIT $ JIT Distributors $3,180,000 1,120,000 1,050,000 $5,350,000 Total 1. Calculate the total revenues per distributor category, and assign the customer costs to each distributor type by using revenues as the allocation base. Selling price for one unit is $150. Round calculations to the nearest dollar. 650,000 97,500,000 2,675,000…arrow_forward
- 1. There is a significant decrease in unit sales. Which of the following would be the LEAST likely action among the different departments? a. Consult with marketing and sales to determine whether there are changes in customer preferences. b. Review changes in technology and determine whether there is obsolescense in the products and the production process c. Inquire with the after-sales service whether there are indications of high level of unresolved customer complaints. d. Communicate with inbound logistics and determine whether raw materials contributed to increase in product failure. 2. The internal cost analysis process involves the following in what order? (A) Identify the links between the process and check for opportunities to lower costs, (B) Identify the value creating processes and the cost of each, (C) Identify the cost driver for each process and the cost per activity level. a. A, B, Cb. C, A, Bc. B, A, Cd. B, C, A 3. This stage of…arrow_forwardAsbury Coffee Enterprises (ACE) manufactures two models of coffee grinders. Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,929,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Management has determined that overhead costs are caused by three cost…arrow_forwardManagement of Mittel Company would like to reduce the amount of time between when a customer places an order and when the order is shipped. For the first quarter of operations during the current year the following data were reported: Inspection time Wait time (from order to start of production) Process time Move time Queue time You received no credit for this question in the previous attempt. 1. Throughput time 2. Manufacturing cycle efficiency 3. Non-value-added throughput time 4. Delivery cycle time 5. New manufacturing cycle efficiency 0.3 days 16.5 days 2.5 days Required: 1. Compute the throughput time. (Round your answer to 1 decimal place.) 2. Compute the manufacturing cycle efficiency (MCE) for the quarter. (Round your percentage answer to nearest whole percent.) 3. What percentage of the throughput time was spent in non-value-added activities? (Round your percentage answer to nearest whole percent.) View previous attempt 1.3 days 4.0 days 4. Compute the delivery cycle time.…arrow_forward
- Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $2,037,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Personal Commercial Total Direct materials $ 1,445,000 $ 620,000 $ 2,065,000 Direct labor 1,030,000 667,500 1,697,500 Management has determined that overhead costs are caused by three cost…arrow_forwardAsbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $2,023,500 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Personal Commercial Total Direct materials $ 1,444,200 $ 609,750 $ 2,053,950 Direct labor 1,029,000 657,250 1,686,250 Management has determined that overhead costs are caused by three cost…arrow_forwardAsbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,902,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,437,000 1,020,000 Commercial $ 517,500 565,000 Total $ 1,954,500 1,585,000 Management has determined that overhead costs are caused by three cost drivers. These…arrow_forward
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