Clear Panes, Inc. is a manufacturer of energy efficient residential windows. The organization is a leader in
Question:
Clear Panes, Inc. is a manufacturer of energy efficient residential windows. The organization is a leader in the industry and is well known for the craftsmanship of their products. Clear Panes, Inc. started as a family owned and private business in 1947. However, the organization quickly expanded in 1950 as it became the sole supplier for a number of contractors that constructed pre-fabricated homes for new housing developments. Over the next several decades, the company developed new manufacturing techniques that allowed for the production of innovative and durable windows to be used in a variety of homes. In the last five years, the company has developed products that exceed governmental standards for superior energy efficiency. They are also exploring opportunities to implement green practices in their production facilities.
These are the last three questions that you must address:
Clear Panes, Inc. manufactures and distributes three tiers of products. A recommendation was presented to switch to an ABC system. The cost break down for the first month of the year consists of the following:
There is an additional estimate of 50,000 direct labor hours at a rate of $14 per hour.
Assume the following activity took place:
1) Compute the production costs for each product in the first month of the year using direct labor hours as the allocation base. Compute the production costs for each product in the first month of the year using machine hours as the allocation base.
2) Compute the production costs for each product in the first month of the year using activity-based costing.
3) Should this company accept the recommendation to switch to an ABC system? Why or why not? Include the advantages and disadvantages of an ABC system.
Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri