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Managerial Accounting Project 2 Activity Based Costing & Cost Management Jennifer is the director of marketing and communications for a small mutual fund company. For internal accounting purposes, her department's expenses can be divided into five categories: O/ H) Social Media Direct Marketing $45,000 TV and Radio Advertising $150,000 All other Expenses $80,000 $180,000 Mailing and Distribution Jo/ $175,000 4overhead Cost Definitions Social Media: expenses related to marketing the company on social media platforms. The primary component of which is the salary of one part-time social media specialist. TV and Radio: the cost of TV and Radio campaigns designed to attract potential customers. The department employs a full time employee to oversee this activity. Direct Marketing: the expenses related to direct marketing such as paper mail, emails, and phone calls to current and potential clients. The company hires an outside firm to conduct this type of marketing. Mailing and Distribution: the cost of designing, printing and distributing documents such as prospectuses, annual reports and shareholder notices. The department employs a full time employee to oversee this activity. All Other Expenses: all department expenses not separately listed. This category includes depreciation on computers and equipment, building and equipment maintenance, and miscellaneous expenses that cannot be easily categorized, including Jennifer's salary. Funds Offered Jennifer's company offers three funds: The Silver Fund caters to retirees and clients that have a retirement horizon within the next 10 years. The Institutions Fund caters to large institutional investors and high net worth individuals. The Future Fund is for younger investors with an average age of 33. Information about the asset size and resource usage of these funds is provided below: Silver Fund Institutions Fund Future Fund Assets under management $150 M $250 M $100 M No. of Clients 600 100 2,800 No. of Pages Mailed 20,000 7,000 3,000 No. of TV & Radio Spots 35 0 35 Social Media % 25% 15% 60%ABC Proposal Jennifer learned about activity based costing (ABC) in her MBA managerial accounting class and is thinking about proposing that the company implement an ABC system to allocate marketing and communications costs to the company's funds. Based on her experience and available data she believes that each cost category should be allocated based on the following cost drivers: Social Media - percentage of time the social media specialist spends on promoting each fund Direct Marketing - the number of clients in each fund IV and Radio Advertising - number of TV and radio spots Mailing and Distribution - number of pages mailed All other Expense - assets under fund management Assignment Instructions: Please embed your answers inside the document after each question. If you are unsure about something, feel free to email me for guidance. 1. Under the current cost allocation system, all marketing and communications expenses are allocated based on assets under management. Calculate the cost allocated to each fund under the current system and the Jennifer's newly proposed ABC system. 2. Compare the allocated costs in the two methods from part 1. Which activities seem to be driving the differences in allocated costs? 3. Should Jennifer's company begin allocating marketing and communications costs to the funds using her proposed ABC system, or should they stick with the old system? What are some pros and cons of both? 4 . Jennifer was able to account for the number of hours the social media specialist spent working on promoting each fund. The specialist's contract specifies that he be paid for 1,000 hours per year at a rate of $38 per hour. Jennifer found that the specialist worked 200 hours on the Silver Fund, 120 hours on the Institutions Fund, and 480 hours on the Future Fund. Recalculate the social media costs allocated to each fund using social media hours instead of percentage, where the rate is based on capacity rather than hours worked. Note that the budgeted social media expense includes costs that are not directly associated with the social media expert's salary. Are social media expenses under- or over-applied using the capacity based system and by how much? 5. Given the data available, provide at least one proposal to reduce costs in Jennifer's your answer. department. Make reasonable assumptions as necessary, and state these assumptions in