Case Study: Adventurous Computer Games, Inc.
Adventurous Computer Games, Inc.
Part 1. Accounting for the Cost of Software Programs at AdCom Games
Adcom games should allocate all costs from the Product Development Support Center, as well as the project team labor, to the games that are developed. I believe that all costs from the Product Development Support Center (PDSC) should be allocated in order to properly match expenses with revenues. Costs should be allocated on the basis of lines of code written. For example, 16% of all code written pertained to “Secret Agent”. Because 16% of work product went towards this game, 16% of all costs incurred by the PDSC should be allocated to this game as well. Labor costs pertaining to this game should be added to the allocated PDSC costs in order to find the total cost of the product.
The total product costs for Secret Agent, The Wild West, and World Search are: $235,520; $485,920; $629,560 – respectively. These estimates were developed using the methodology explained above (based on lines of code). The tables below will better illustrate how the estimates were made.
I would recommend that labor hours be tracked to specific jobs so that costs can be more accurately allocated. While lines of code is a good measure, hours would most likely be better. Even if a game has fewer lines of code than another, it doesn’t necessarily mean that code was written in less time. Some code, while short, can still be complex and could have required large amounts of time to get working. For this reason, I feel that hours would be a better measure than lines of code.
I would also recommend depreciating PDSC equipment using activity-based depreciation. Capitalizing the depreciation expense, and then re-capitalizing the cost to the inventory, accomplishes the same purpose. However, it would make more sense to depreciate equipment using the activity-based method, and not have to re-capitalize the depreciation expense (only to re-expense it later).
Part 2.
Part 1. Accounting for the Cost of Software Programs at AdCom Games
Adcom games should allocate all costs from the Product Development Support Center, as well as the project team labor, to the games that are developed. I believe that all costs from the Product Development Support Center (PDSC) should be allocated in order to properly match expenses with revenues. Costs should be allocated on the basis of lines of code written. For example, 16% of all code written pertained to “Secret Agent”. Because 16% of work product went towards this game, 16% of all costs incurred by the PDSC should be allocated to this game as well. Labor costs pertaining to this game should be added to the allocated PDSC costs in order to find the total cost of the product.
The total product costs for Secret Agent, The Wild West, and World Search are: $235,520; $485,920; $629,560 – respectively. These estimates were developed using the methodology explained above (based on lines of code). The tables below will better illustrate how the estimates were made.
I would recommend that labor hours be tracked to specific jobs so that costs can be more accurately allocated. While lines of code is a good measure, hours would most likely be better. Even if a game has fewer lines of code than another, it doesn’t necessarily mean that code was written in less time. Some code, while short, can still be complex and could have required large amounts of time to get working. For this reason, I feel that hours would be a better measure than lines of code.
I would also recommend depreciating PDSC equipment using activity-based depreciation. Capitalizing the depreciation expense, and then re-capitalizing the cost to the inventory, accomplishes the same purpose. However, it would make more sense to depreciate equipment using the activity-based method, and not have to re-capitalize the depreciation expense (only to re-expense it later).
Part 2.