Chapter 17: Serial Problem

This collection of problems, activities, and discussion questions delves into advanced cost accounting concepts, specifically focusing on overhead allocation methods, activity-based costing (ABC), and customer profitability analysis for different products or orders. Here's an overview and guide to approach each section: Problem SP 17: Business Solutions - Overhead Cost Analysis 1. Classify Overhead Activities: o Unit Level: Costs incurred for each individual unit. o Batch Level: Costs associated with batches of products. o Product Level: Costs that support specific products. o Facility Level: Costs related to the overall facility operations. 2. Plantwide Overhead Rate Calculation: o Use machine hours as the basis: Plantwide Overhead Rate=Total Budgeted Overhead o Then, calculate the total product cost of Job 615 by adding direct material, direct labor, and allocated overhead costs. 3. Activity-Based Costing Analysis: o Compute Overhead Activity Rates: Calculate rates for each overhead activity using: Activity Rate=Total Cost of the ActivityTotal Driver Usage o Allocate Overhead to Job 615: Apply each activity rate to Job 615 based on its usage. o Total Product Cost of Job 615: Sum direct costs and allocated ABC overhead. Apple Analysis (AA 17-1 and AA 17-2) 1. Activity Rate for Customer Support Cost: o Calculate the activity rate by dividing total support costs by budgeted support calls. 2. Customer Profitability Report: o For Apple and Google, calculate customer support costs, product costs, and profit margins for the order. Compare profitability for the college order to identify which company has a better profit outcome. Samsung Analysis (AA 17-3) 1. Compute Activity Rate for Each Model: Use budgeted support costs and calls to determine activity rates. 2. Customer Profitability Report: o Calculate and compare profitability for Galaxy Book S and Galaxy Book Flex orders. This will reveal which product has a higher income from each type of order. o Discussion Questions Overview 1. Overhead Allocation: o Overhead costs are distributed because they are indirect and cannot be directly traced to products like materials and labor. 2. Overhead Allocation Methods: o Common methods include plantwide, departmental, and activitybased costing (ABC). 3. Basis of Overhead Allocation: o Direct labor and machine hours are often used due to their correlation with production activity levels. 4. Plantwide Overhead Rate Advantages: o Simplicity and lower costs, though potentially less accurate. 5. Overhead Allocation with Plantwide Method: o Allocate based on a single rate for the entire facility, calculated from total overhead divided by total activity. 6. Cost Object Definition: o A cost object is any item for which costs are measured and assigned. 7. Distortion from Plantwide Rate: o When products consume resources unevenly, a plantwide rate can misallocate costs, affecting accuracy. 8. Departmental vs. Plantwide Rates: o Departmental rates can improve accuracy by reflecting different resource demands in each department. 9. External Reporting and Overhead Allocation: o All methods may be used, though activity-based costing is particularly useful for accuracy. 10. ABC Method's Accuracy: • ABC allocates overhead based on actual usage of resources, providing better cost accuracy. Extended Analysis and Beyond-the-Numbers Ethics Challenge (BTN 17-1): • Consider ethical obligations both to the company (reporting non-value activities) and employees who may be affected. Communicating ABC to CEO (BTN 17-2): • Explain that ABC allocates overhead based on specific activities rather than volume alone, allowing for more accurate product costing. Teamwork in Action (BTN 17-3): • Observe activities, analyze costs related to each activity, and assess the workforce needed to complete typical orders. Entrepreneurial Decision (BTN 17-4): • If expanding product lines, determine whether overhead costs should be shared with current products, depending on shared or unique resource usage. Would you like further details on any calculations, or help drafting any reports or responses?