Traditional costing approach

Assignment Help Macroeconomics
Reference no: EM131186186

Real Options Homework

Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customers with collapsible umbrellas imprinted with its logo. The management at Hampshire is currently working out a deal with the touring company to produce 3,000 collapsible umbrellas and believes it can sell those umbrellas for $14.00 each. Here are the costs that can be directly traced to this special order:

Direct Materials: $9,300

Direct Labor Hours: 600

Hourly Rate of Direct labor: $8.00

In the traditional costing approach, overhead is applied at the rate of $24.60 per labor hour. This expansion in production will add additional overhead costs. The total overhead costs (assuming production of the stick and collapsible umbrellas) to include the cost pools and cost drivers are provided in Table 2.

An alternative costing method that might benefit Hampshire is the implementation of activity-based costing (ABC). Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information:

Stick

Collapsible

 

Units Sold

60,000

3,000

Selling Price

$12.50

$14.00

Direct Material Cost per Unit

$3

$3.10

Direct Labor Cost per Hour

$7.50

$8.00

Variable Manufacturing Overhead

$0.40

$0.40

Variable Selling Costs

$1.10

$1.10

Labor Hours per Unit

0.2

0.2

Sales Orders

120

1

Purchase Orders

50

3

Production Runs

45

6

Material Moves

86

10

Machine Setups

130

6

Machine Hours

525

32

Inspections

200

10

Shipments

60

3

Table 1: Direct Cost Information and Activities

Activity

Activity Cost

Activity Cost Driver

Order Processing

$35,000

Number of Sales Orders

Purchasing

$36,000

Number of Purchase Orders

Material Handing

$28,000

Material Moves

Machine Setup

$14,000

Machine Setups

Production

$99,000

Production Runs

Assembly

$80,000

Machine Hours

Inspecting

$11,000

Number of Inspections

Shipping

$7,500

Number of Shipments

Table 2: Activity Cost Pools and Cost Drivers

Another alternative to traditional costing and ABC is time-driven activity-based costing (TDABC). You will need to determine which of these three methods would be the best approach for the Hampshire Company. The following article may assist you in your analysis: Time-Driven Activity-Based Costing. Additionally, you may want to use the Shapiro Library to conduct further research on the three methods. You will need to defend your position when answering the prompts for the written portion of this section.

Using the information provided above, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section IV:

1. Calculate the allocation rates for each cost driver using ABC.

2. Use the traditional costing approach to calculate the total cost and the unit cost of the stick and collapsible umbrellas.

3. Use ABC to compute the total costs and the unit cost for the stick and collapsible umbrellas.

4. Compute the difference between the product cost per stick and collapsible umbrellas using the unit cost that you computed with the traditional approach and the one that you computed using ABC.

Reference no: EM131186186

Questions Cloud

How does the compare to our wall street big bankers today : A movie you will never forget-a true "classic"--managerial economics ethical or not/ including banking- a historical perspective. It happened like you see it. How does this compare to our Wall Street big bankers today?
Renaissance in europe to contemporary society : Here's the topic: Compare and contrast society during the early Renaissance in Europe to contemporary society. Your paper is to be 70-80% original and 20-30% resourced (documented via turnitin.com).  Details and milestones follow.
Physically test your design in the fpga development board : At this point add the following feature (modify the design and download it to the FPGA board): the yellow lights should blink (at 0.5 Hz) while the circuit is in the standby mode.
Enough evidence to support intuition : A news report on NPR declared that the average hourly rate for 2014 was $30.56. You believe, based on your analysis from the case studies, that the average hourly wage is different than what was reported on the radio. Perform an appropriate hypoth..
Traditional costing approach : In the traditional costing approach, overhead is applied at the rate of $24.60 per labor hour. This expansion in production will add additional overhead costs. The total overhead costs (assuming production of the stick and collapsible umbrellas) t..
Are they making enough to not only get by but to thrive : Are they making enough to not only get by but to thrive? Are they paying taxes on this income? Are they finding a way to save for their own retirement or the types of personal health or circumstantial crises that the flesh is heir to?
How are their economic systems classified : Can you have a U.S. management style in these countries? In support of your answer, show how various issues would influence the success of multicultural teamwork. How are their economic systems classified? Explain why they are classified as such
Multinational organization for service outside : Help on starting this short essay (2-3pags) In staffing a multinational organization for service outside the IC home country, what are some advantages and disadvantages of hiring home country personnel?
Develop a category 3 solution for a serial data transmitter : Present an illustrative timing diagram for your FSM, for N = 4 and x(3:0) = " 1101. "

Reviews

Write a Review

 

Macroeconomics Questions & Answers

  How does the share of income spent on each good change

How does the share of income spent on each good change with pb? If consumers' preferences defined by a Cobb-Douglas utility function, what does your result suggest about their expenditure patterns?

  What is the composition of gdp by percentage

What is the composition of GDP by percentage, what is the GDP per capita and  If government purchases go up in the short run, what happens to GDP?

  As an employee of the world bank you have been asked to

as an employee of the world bank you have been asked to research 1 economic concern in a south american country and

  Best practices of government agencies

Choose one best practice from an organization or management that you are familiar with, and then whether that best practice can be implemented into the culture of a governmental entity and how it can improve service delivery to its citizens.

  Elasticity of demand as the prices falls

The equation for a demand curve is P=2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the prices falls from 9 to 8? Would you expect the answers to be the same? Why/why not?

  What considerations exist for entering into an ijv in china

Your supervisor was scheduled to present a seminar called Strategic Implementation in China, but he is now unable to fulfill this commitment and has asked you to take his place. What special considerations exist for entering into an IJV in China?

  How much would nominal wages need to increase

Suppose that a labor union leader is trying to bargain for an increase in union workers' real wages of 5 percent. If he expected the price level to rise at a rate of 3 percent this year, how much would nominal wages need to increase for him to acc..

  Current and recent evidence to support

Given this, what do you think are the prospects for Russia fully joining the global economy? Provide current and recent evidence to support your claim.

  Macroeconomics fourth canadian edition

Answer the following questions as these general questions pertain to the specific issue selected.The questions that you will cover with respect to your choice of broad social issue in the paper are given.

  Why is the long-run aggregate supple curve vertical

Why is the long-run aggregate supple curve vertical?  Explain the shape of the short run aggregate supply curve. Why is the short-run curve relatively flat to the left of the full-employment output and realively steep to the right?

  Effect of the shock on price level

With the help of an AD-AS diagram, explain the effect on the price level and real GDP.  Use an upward sloping AS curve and be clear about the interconnections among markets.

  Fluctuating foreign exchange rates

Why is an exporter that is to be paid in six months in a foreign currency worried about fluctuating foreign exchange rates?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd