COLLABORATIVE LEARNING EXERCISE XXIII The Tracy Corporation has a machining facility specializing in jobs for the aircraft-components market. The previous job costing system had two direct- cost categories (direct materials and direct manufacturing labor) and a single indirect-cost pool (manufacturing overhead, allocated using direct manufacturing direct-labor hours). The indirect-cost allocation rate of the previous system for 2003 would have been $115 per direct manufacturing labor hour. Recently a team with members from production design, manufacturing and accounting used an ABC approach to refine its job-costing system. The two direct-cost categories were retained. The team decided to replace the single indirect-cost pool with five indirect-cost pools. The cost pools represent five activity areas at the facility, each with its own supervisor and budget responsibility. Pertinent data are as follows:
Activity Area Cost-Allocation Base Cost-Allocation Rate Material handling Lathe work Lathe turns Milling Machine-hours Grinding Parts Testing Units Information gathering technology has advanced to the point at which the data necessary for budgeting in these five activity areas are collected automatically. Two representative jobs processed under ABC system at the facility in the most recent period had the following characteristics: Per job Direct materials Direct manufacturing labor cost Number of direct manufacturing labor-hours Parts 500 Lathe turns Machine-hours 150 Units (all tested) An overview of the product-costing system is given above.
IE240 Levent Kandiller Spring 2008 Department of Industrial Engineering, Ç.U.
IE240 Levent Kandiller Spring 2008 Department of Industrial Engineering, Ç.U.
1. Compute the manufacturing cost per unit under the previous job-costing Job Order 410 Job Order 411 Direct manufacturing costs: materials manufacturing Indirect manufacturing costs Total manufacturing costs Number of units Manufacturing costs per unit $ 1,332.50 $ 571.375 Compute the manufacturing cost per unit under the previous job-costing system. Job Order 410 Job Order 411 Direct manufacturing costs: materials manufacturing Indirect manufacturing costs: Materials handling Grinding Total manufacturing costs $109,550 Number of units per job Unit manufacturing cost per job 3. COMPARISON:
Job Order 410 Job Order 411 Number of units in job Costs per unit with prior costing system $ Costs per unit with activity-based costing Job order 410 has an increase in reported unit cost of % [($1,820 – $1,332.50) ÷ $1,332.50], while job order 411 has a decrease in reported unit cost of 4.1% [($ – $ ) ÷ $ ].
IE240 Levent Kandiller Spring 2008 Department of Industrial Engineering, Ç.U.
A common finding when activity-based costing is implemented is that low-volume products have increases in their reported costs while high-volume products have decreases in their reported cost. This result is also found in requirements 1 and 2 of this problem. Costs such as materials-handling costs vary with the number of parts handled (a function of batches and complexity of products) rather than with direct manufacturing labor-hours, an output-unit level cost driver, which was the only cost driver in the previous job-costing system.
The product cost figures computed in requirements 1 and 2 differ because: a. the job orders differ in the way they use each of five activity areas, and b. the activity areas differ in their indirect cost allocation bases (specifically, each area does not use the direct manufacturing labor-hours indirect cost allocation base).
The following table documents how the two job orders differ in the way they use each of the five activity areas included in indirect manufacturing costs:
Usage Based on Analysis of Usage Assumed with Direct Manuf. Activity Area Cost Drivers Labor-Hours as Application Base Activity Area Job Order 410 Job Order 411 Job Order 410 Job Order 411 Materials handling Grinding
The differences in product cost figures might be important to Tracy Corporation for product pricing and product emphasis decisions. The activity- based accounting approach indicates that job order 410 is being costed while job order 411 is being costed. Tracy Corporation may erroneously push job order 410 and deemphasize job order 411. Moreover, by its actions, Tracy Corporation may encourage a competitor to enter the market for job order 411 and take market share away from it.
IE240 Levent Kandiller Spring 2008 Department of Industrial Engineering, Ç.U.
Data Exclusivity Periods and Next Generation Improvements to Innovator Biologics: Key Issues Duke University Department of Economics Working Paper, No. 2009-05 April 29, 2009 Authors: Henry Grabowski Professor of Economics and Director of the Program in Pharmaceuticals and Health Economics Duke University [email protected] Iain Cockburn Professor of Finance and Economics Bost
1.1. This Guide is heavily weighted toward litigation and arbitration, but the Introduction defines the other types of international peaceful means of dispute settlement because students may run across them in their reading. But litigation is the only peaceful means of dispute settlement that regularly publishes its results. Arbitral awards that come from an intergovernmental organization’s
COLLABORATIVE LEARNING EXERCISE XXIII