1. Comment (briefly) on the design of the two costing systems + draw an overview diagram of...
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1. Comment (briefly) on the design of the two costing systems + draw an overview diagram of each system. Explain why you believe / do not believe that the ABC system provides better costing information for decision making than the old system.
2. Which management conclusion would you draw from the results?
3.
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Dunant Windows is a small, family-owned company that builds specialty wooden windows for local builders. For years the company has relied on a simple costing system that applies manufacturing overhead to jobs strictly on the basis of direct labor hours (DLHS) for determining the costs of its products. The direct labor wage rate is €18 per hour. However, the company's president became interested in activity-based costing (ABC). An ABC design team was put together in collaboration with an external consultant, and within a few months a prototype system had been developed. The activity cost pools, their activity measures, and practical capacity are as follows: Activity Cost Pool Activity Measure Total Activity for the Year Making windows 80,000 DLHS Direct labor hours Number of orders Processing orders 1,000 orders Customer relations Number of customers 200 customers Other* N/A N/A *The "Other" category includes business-sustaining resources unrelated to any of the activities in the costing system as well as idle capacity resources. The "processing orders" activity includes order taking from customers, setup, and job scheduling. The total overhead cost (both manufacturing and non-manufacturing) for the year is €1,180,000 and includes the following cost items: Dunant Windows is a small, family-owned company that builds specialty wooden windows for local builders. For years the company has relied on a simple costing system that applies manufacturing overhead to jobs strictly on the basis of direct labor hours (DLHS) for determining the costs of its products. The direct labor wage rate is €18 per hour. However, the company's president became interested in activity-based costing (ABC). An ABC design team was put together in collaboration with an external consultant, and within a few months a prototype system had been developed. The activity cost pools, their activity measures, and practical capacity are as follows: Activity Cost Pool Activity Measure Total Activity for the Year Making windows 80,000 DLHS Direct labor hours Number of orders Processing orders 1,000 orders Customer relations Number of customers 200 customers Other* N/A N/A *The "Other" category includes business-sustaining resources unrelated to any of the activities in the costing system as well as idle capacity resources. The "processing orders" activity includes order taking from customers, setup, and job scheduling. The total overhead cost (both manufacturing and non-manufacturing) for the year is €1,180,000 and includes the following cost items:
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The Legal Environment of Business A Critical Thinking Approach
ISBN: 978-0132664844
6th Edition
Authors: Nancy K Kubasek, Bartley A Brennan, M Neil Browne
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