The questions are to be answered based on the information ofdata below an dplease help to answer the question in detail.
The questions to concentrate on are as follows:
There are various costing methods available for companies toimplement. As a company grows, it may become beneficial to consideran alternate costing method.
A. Identify an alternative costing method that could benefitthis company, and describe the main characteristics of thatmethod.
B. What should a company look for when trying to determinewhether they should adopt such a system?
C. Should the company adopt this alternative costing method?Defend your response.
This is scenario :
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials:$3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
The data that is supposed to be usedto answer the questions mentioned on top is right below. Pleasehave a look at the calculations.
Cost InformationFrom Instructions Stick Collapsible Units Sold 60,000 3,000 Selling Price $12.50 $14.00 Direct Material Cost Per Unit $3.00 $3.10 Direct Labor Cost Per Hour $7.50 $8.00 Variable MO $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 Activity Information fromInstructions 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 Requirement 1 Activity Total Costs Quantity of Cost Allocation Base Overhead Allocation Rate Order Processing $35,000 121 $289 Purchasing $36,000 53 $679 Material Handing $28,000 96 $292 Machine Setup $14,000 136 $103 Production $99,000 51 $1,941 Assembly $80,000 557 $144 Inspecting $11,000 210 $52 Shipping $7,500 63 $119 Requirement 2 Traditional Costing Stick Umbrella Collapsible Umbrella Total Revenues $750,000 $42,000 $792,000 Direct Materials $180,000 $9,300 $189,300 Direct Labor $90,000 $4,800 $94,800 Variable Overhead $24,000 $1,200 $25,200 Variable Selling Costs $66,000 $3,300 $69,300 Allocated Fixed Overhead $295,714 $14,786 $310,500 Total Costs $655,714 $3,386 $689,100 Operating Income $94,286 $8,614 $102,900 Operating Income % 13% 21% $13 Per Unit Operating Income $1.57 $2.87 Requirement 3 Activity-Based Costing Stick Umbrella Collapsible Umbrella Total Revenues $750,000 $42,000 $792,000 Direct Materials $180,000 $9,300 $189,300 Direct Labor $90,000 $4,800 $94,800 Variable Overhead $24,000 $1,200 $25,200 Variable Selling Costs $66,000 $3,300 $69,300 Order Processing Costs $34,711 $289 $35,000 Purchasing Costs $33,963 $2,038 $36,000 Material Handing Costs $25,084 $2,917 $28,000 Machine Setup Costs $13,382 $618 $14,000 Production Costs $87,353 $11,647 $99,000 Assembly Costs $75,405 $4,595 $80,000 Inspecting Costs $10,476 $524 $11,000 Shipping Costs $7,143 $357 $7,500 Total Costs $647,516 $41,584 $689,100 Operating Income $102,484 $416 $102,900 Operating Income % 14% 1% 12.99 Per Unit Operating Income $1.71 $0.14 Requirement 4 Costs per Unit Stick Umbrella Collapsible Umbrella Traditional $10.93 $11.13 ABC $10.79 $13.86 Difference $0.14 $($2.73) Requirement 5 Calculation ofLabour Hours (note): 1) Labor hour per unit of stick umbrella is0.2 and it is the same for the collapsible umbrella. While theunits sold for the stick umbrella are 60,000 and for thecollapsible umbrella are 3,000. Then multiply the labor hour perunit with the units sold, then the total amount for the stickumbrella is $12,000 and for the collapsible umbrella is $600.Adding these both amounts will total $12,600
The questions are to be answered based on the information ofdata below an dplease help to answer the question in detail.
The questions to concentrate on are as follows:
There are various costing methods available for companies toimplement. As a company grows, it may become beneficial to consideran alternate costing method.
A. Identify an alternative costing method that could benefitthis company, and describe the main characteristics of thatmethod.
B. What should a company look for when trying to determinewhether they should adopt such a system?
C. Should the company adopt this alternative costing method?Defend your response.
This is scenario :
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials:$3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
The data that is supposed to be usedto answer the questions mentioned on top is right below. Pleasehave a look at the calculations.
| Cost InformationFrom Instructions | ||||
| Stick | Collapsible | |||
| Units Sold | 60,000 | 3,000 | ||
| Selling Price | $12.50 | $14.00 | ||
| Direct Material Cost Per Unit | $3.00 | $3.10 | ||
| Direct Labor Cost Per Hour | $7.50 | $8.00 | ||
| Variable MO | $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 | ||
| Activity Information fromInstructions | ||||
| 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 | ||
| Requirement 1 | ||||
| Activity | Total Costs | Quantity of Cost Allocation Base | Overhead Allocation Rate | |
| Order Processing | $35,000 | 121 | $289 | |
| Purchasing | $36,000 | 53 | $679 | |
| Material Handing | $28,000 | 96 | $292 | |
| Machine Setup | $14,000 | 136 | $103 | |
| Production | $99,000 | 51 | $1,941 | |
| Assembly | $80,000 | 557 | $144 | |
| Inspecting | $11,000 | 210 | $52 | |
| Shipping | $7,500 | 63 | $119 | |
| Requirement 2 | ||||
| Traditional Costing | ||||
| Stick Umbrella | Collapsible Umbrella | Total | ||
| Revenues | $750,000 | $42,000 | $792,000 | |
| Direct Materials | $180,000 | $9,300 | $189,300 | |
| Direct Labor | $90,000 | $4,800 | $94,800 | |
| Variable Overhead | $24,000 | $1,200 | $25,200 | |
| Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
| Allocated Fixed Overhead | $295,714 | $14,786 | $310,500 | |
| Total Costs | $655,714 | $3,386 | $689,100 | |
| Operating Income | $94,286 | $8,614 | $102,900 | |
| Operating Income % | 13% | 21% | $13 | |
| Per Unit Operating Income | $1.57 | $2.87 | ||
| Requirement 3 | ||||
| Activity-Based Costing | ||||
| Stick Umbrella | Collapsible Umbrella | Total | ||
| Revenues | $750,000 | $42,000 | $792,000 | |
| Direct Materials | $180,000 | $9,300 | $189,300 | |
| Direct Labor | $90,000 | $4,800 | $94,800 | |
| Variable Overhead | $24,000 | $1,200 | $25,200 | |
| Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
| Order Processing Costs | $34,711 | $289 | $35,000 | |
| Purchasing Costs | $33,963 | $2,038 | $36,000 | |
| Material Handing Costs | $25,084 | $2,917 | $28,000 | |
| Machine Setup Costs | $13,382 | $618 | $14,000 | |
| Production Costs | $87,353 | $11,647 | $99,000 | |
| Assembly Costs | $75,405 | $4,595 | $80,000 | |
| Inspecting Costs | $10,476 | $524 | $11,000 | |
| Shipping Costs | $7,143 | $357 | $7,500 | |
| Total Costs | $647,516 | $41,584 | $689,100 | |
| Operating Income | $102,484 | $416 | $102,900 | |
| Operating Income % | 14% | 1% | 12.99 | |
| Per Unit Operating Income | $1.71 | $0.14 | ||
| Requirement 4 | ||||
| Costs per Unit | Stick Umbrella | Collapsible Umbrella | ||
| Traditional | $10.93 | $11.13 | ||
| ABC | $10.79 | $13.86 | ||
| Difference | $0.14 | $($2.73) | ||
| Requirement 5 | ||||
| Calculation ofLabour Hours (note): 1) Labor hour per unit of stick umbrella is0.2 and it is the same for the collapsible umbrella. While theunits sold for the stick umbrella are 60,000 and for thecollapsible umbrella are 3,000. Then multiply the labor hour perunit with the units sold, then the total amount for the stickumbrella is $12,000 and for the collapsible umbrella is $600.Adding these both amounts will total $12,600 | ||||
Related questions
The information below represents the beginning and endinginventory amounts along with the production and sales for the monthin umbrella units
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000 Umbrellas
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Using the information
Prepare a variable costing income statement.
Prepare an absorption costing income statement.
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead: $0.40
Variable Selling Expenses: $1.10
| Requirement 1 | ||||
| Hampshire Company | ||||
| Variable Costing Income Statement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost ofGoods Sold: | ||||
| BeginningInventory | $ | |||
| DirectMaterials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| ManufacturingOverhead | X | $ | $ | |
| Total VariableCosts | $ | |||
| Cost of GoodAvailable for Sale | $ | |||
| Deduct EndingInventory | X | $ | $ | |
| Variable Costs of Goods Sold | $ | |||
| Variable SellingCosts | X | $ | $ | $ |
| ContributionMargin | $ | |||
| Fixed Costs: | ||||
| FixedManufacturing Costs | $ | |||
| FixedAdministrative Costs | $ | |||
| OperatingIncome | $ | |||
| Requirement 2 | ||||
| Hampshire Company | ||||
| Absorption Costing Income Statement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost ofGoods Sold: | ||||
| BeginningInventory | $ | |||
| DirectMaterials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| ManufacturingOverhead | X | $ | $ | |
| Total VariableCosts | $ | |||
| Allocated FixedManufacturing Costs | X | $ | $ | |
| Cost of GoodAvailable for Sale | $ | |||
| Deduct EndingInventory | X | $ | $ | |
| Costs of Goods Sold | $ | |||
| Gross Margin | $ | |||
| Fixed Costs: | ||||
| Variable SellingCosts | X | $ | $ | |
| FixedAdministrative Costs | $ | |||
| OperatingIncome | $ | |||
The information below representsthe beginning and ending inventory amounts along with theproduction and sales for the month in umbrella units
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000 Umbrellas
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Using the information
Prepare a variable costing income statement.
Prepare an absorption costing income statement.
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
| Requirement 1 | ||||
| Hampshire Company | ||||
| Variable Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Variable Costs of GoodsSold | $ | |||
| Variable Selling Costs | X | $ | $ | $ |
| Contribution Margin | $ | |||
| Fixed Costs: | ||||
| Fixed Manufacturing Costs | $ | |||
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
| Requirement 2 | ||||
| Hampshire Company | ||||
| Absorption Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Allocated Fixed Manufacturing Costs | X | $ | $ | |
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Costs of GoodsSold | $ | |||
| Gross Margin | $ | |||
| Fixed Costs: | ||||
| Variable Selling Costs | X | $ | $ | |
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
LOOKING FOR SOLUTION TO PART 2,3,4
Section I: Cost-Volume-Profit Analysis
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
Using the information above, perform a cost-volume-profit (CVP)analysis by completing the steps below. All CVP calculations shouldbe completed in the Hampshire Company Spreadsheet. Note:The CVP analysis satisfies Part A of Section I.
Compute net income before tax.
Compute the unit contribution margin in dollars and thecontribution margin ratio for one umbrella.
Calculate the break-even point in units and dollars of revenue.Note: This is a required part of the CVP analysis andsatisfies Part C of Section I.
Calculate the margin of safety:
In units
In sales dollars
As a percentage
Calculate the degree of operating leverage.
Assume that sales will increase by 20% in 2015. Calculate thepercentage of before-tax income for this increase. Providecalculations to prove that your percentage increase is correctbased on the operating leverage calculated in step 5.
Compute the number of umbrellas that Hampshire is required tosell if it plans to earn $150,000 in income before taxes by usingthe target income formula. Proof your calculation.
A company that specializes in tours in England has offered topurchase 5,000 umbrellas at $11 each from Hampshire. The variableselling costs of these additional units will be $1.30 as opposed to$1.10 per unit. Also, this production activity will incur another$15,000 of fixed administrative costs. Should Hampshire agree tosell these additional 5,000 umbrellas to the touring business?Provide calculations to support your decision.
Additionally, complete Parts B and D of Section I as outlined inthe Final Project Guidelines and Rubric document.
Section II: Inventory Management
The information below represents the beginning and endinginventory amounts along with the production and sales for the monthin umbrella units.
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000Umbrellas
Using the information provided above and the costs and salesinformation provided in Section I, complete the following in theHampshire Company Spreadsheet in order to assist you in respondingto all components of Section II:
Prepare a variable costing income statement.
Prepare an absorption costing income statement.
Additionally, complete Parts A through E of Section II asoutlined in the Final Project Guidelines and Rubric document.
Section III: Benchmarking
The management of the Hampshire Company would like to implementbenchmarking. Standard costs have been established and arepresented below. You will want to complete a variance analysis toinclude efficiency and price variances for materials (cloth andhandle assemblies) and labor based on the following data:
Units Produced = 80,000
Units Sold = 60,000
Direct Materials Purchased and Used
Actual square yards of cloth purchased and used: 128,000
Actual price incurred per yard: $1.25
Actual handles purchased and used: 80,808
Actual price per handle/rib/stretcher assembly: $0.99
Direct Manufacturing Labor Used
Actual direct labor hours used: 15,748
Actual price per hour: $7.62
Direct labor costs: $120,000
Standard Rates
Standard labor hours per unit: 0.20
Standard labor price per hour: $7.50
Square yards material per unit: 1.50
Standard price per yard: $1.15
Handle/rib/stretcher assembly per unit: 1
Standard price per handle assembly: $1.05
Companies can use variance analysis and benchmarking to measureperformance within their own company and against competitors. Thiscan be done by setting standards/budgets and comparing a completedvariance analysis to results from prior periods or comparing themto competitorsâ results. Using the information provided above,complete the following calculations (steps 1 and 2) in theHampshire Company Spreadsheet. This will assist you in respondingto all components of Section III.
Calculate price variances for material and labor and denotewhether they are favorable or unfavorable.
Calculate efficiency variances for material and labor and denotewhether they are favorable or unfavorable.
In order to measure performance and make use of the varianceanalysis completed, management understands the need to compareresults with their competitors. Following the steps outlined below,you will research benchmarking and propose the most effectiveapproach for your company. Respond to Parts A through C of SectionIII as outlined in the Final Project Guidelines and Rubricdocument.
Section IV: Alternative Costing Method
Hampshire has always produced stick umbrellas. However, it isconsidering expanding its production to include collapsibleumbrellas. This consideration has been spurred by Tours Today, atouring company that is interested in providing its customers withcollapsible umbrellas imprinted with its logo. The management atHampshire is currently working out a deal with the touring companyto produce 3,000 collapsible umbrellas and believes it can sellthose umbrellas for $14.00 each. Here are the costs that can bedirectly 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 therate of $24.60 per labor hour. This expansion in production willadd additional overhead costs. The total overhead costs (assumingproduction of the stick and collapsible umbrellas) to include thecost pools and cost drivers are provided in Table 2.
An alternative costing method that might benefit Hampshire isthe implementation of activity-based costing (ABC).Hampshire would like to implement an ABC approach to analyze theproduction of this special order of collapsible umbrellas. Thecontroller 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 istime-driven activity-based costing (TDABC). You will need todetermine which of these three methods would be the best approachfor the Hampshire Company. The following article may assist you inyour analysis: Time-Driven Activity-Based Costing. Additionally,you may want to use the Shapiro Library to conduct further researchon the three methods. You will need to defend your position whenanswering the prompts for the written portion of this section.
Using the information provided above, complete the following inthe Hampshire Company Spreadsheet in order to assist you inresponding to all components of Section IV:
1.Calculate the allocation rates foreach cost driver using ABC.
2.Use the traditional costing approachto calculate the total cost and the unit cost of the stick andcollapsible umbrellas.
3.Use ABC to compute the total costsand the unit cost for the stick and collapsible umbrellas.
4.Compute the difference between theproduct cost per stick and collapsible umbrellas using the unitcost that you computed with the traditional approach and the onethat you computed using ABC.
Based on your calculations from steps 1â4, respond to Parts Athrough C in Section IV as outlined in the Final Project Guidelinesand Rubric document.
Section V: Memo to Management
The management of the Hampshire Company is very interested inmeasuring performance. They would like you to recommend a strategyto increase business performance. They are not sure whether theyshould focus on product differentiation or cost leadership.Research additional performance tools to include the balancedscorecard. During your research, consider what performancemeasurements you would use based on the four perspectives. Provideexamples.
In your recommendation, you will want to include the outcome ofyour previous quantitative analysis and research performed relatedto cost-volume-profit (CVP), variable and absorption costing,just-in-time (JIT), standard costs, variances, and benchmarking.You will want to review key points and make recommendations basedon your current research and prior analysis completed and researchperformed.
Your two- to three-page memo to management must be submitted asa Word document and must include your responses to Parts A throughC of Section V as outlined in the Final Project Guidelines andRubric document.
