Bridgeton Paper

Topics: Cost accounting, Net present value, Internal rate of return Pages: 8 (1658 words) Published: August 24, 2013
TOPICS IN MANAGEMENT ACCOUNTING
AMIS 4310

CASE QUESTIONS

Seligram, Inc.: Electronic Testing Operations

1. What caused the existing system at ETO to fail?

2. Calculate the reported cost of the five components listed in Exhibit 6 using:

a. The existing system.

b. The system proposed by the accounting manager.

c. The system proposed by the consultant.

3. Which system is preferable? Why?

4. Would you recommend any changes to the system you prefer? Why?

5. Would you treat the new machine as a separate cost center or as a part of the main test room?

Bridgeton Industries: Automotive Component & Fabrication Plant

1. The official overhead allocation rate used in the 1987 model year strategy study at the Automotive Component and Fabrication Plant (ACF) was 435% of direct labor cost. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers?

2. Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred?

3. Consider two products in the same product line:

Product 1Product 2

Expected Selling Price $62 $54
Standard Material Cost 16 27
Standard Labor Cost 6 3

Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price remains constant and material/labor costs do not change from standard.

4. Are the product costs reported by the cost system appropriate for use in the strategic analysis?

5. Assume that the selling prices, volumes, and material costs for the 1991 model year will not change for fuel tanks and doors produced by the ACF of Bridgeton Industries. Assume also that if manifolds are produced, their selling prices, volume, and material costs will not change either.

a. Prepare an estimated model year budget for the ACF in 1991

(1) if no additional products are dropped.

(2) if the manifold product line is dropped.

Explain any additional assumptions you make in preparing your estimated model year budgets.

b. What will be the overhead allocation rate under the two scenarios?

6. Would you outsource manifolds from the ACF in 1991? Why, or why not? What more information would you want before reaching a final decision?

Destin Brass Products Co.

1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing costs to estimate product costs for valves, pumps, and flow controllers.

2. Compare the estimated costs you calculate to existing standard unit costs (Exhibit 3) and the revised unit costs (Exhibit 4). What causes the different product costing methods to produce such different results?

3. What are the strategic implications of your analysis? Could the production process for flow controllers be changed in such a way to allow Destin Brass Products to reduce the unit cost of flow controllers? How would the change in the lot size for flow controller production affect unit costs? Has Destin Brass Products adopted the most profitable distribution system in the flow controller market? What actions would you recommend to managers at Destin Brass Products Company?

4. Assume that the interest in a new basis for cost accounting at Destin Brass Products remains high. In the following month, quantities produced and sold, activities, and costs were all at standard. How much higher or lower would the net income reported under the activity-transaction-based system be than the net income that will be reported under the present, more traditional system? Why?

Salem Telephone Company

1. “Revenue hours” represent the key activity that drives costs at Salem Data Services. Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with...
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