Cost Analysis

Topics: Value added Pages: 2 (532 words) Published: March 6, 2014

i. The allocation of the current method of allocating of warehousing and shipping cost is not really correct. The current method is direct method which ignores In term of Shipping and Warehousing cost, low volume products should incur this cost instead of both high volume and low volume products. Because, high volume products are deliveried directly to customer so it does not incur the cost of shipping. The low volume products which are sent to distribution center incurred the cost of shipping and warehousing. However, the cost of shipping and warehousing are allocated to both high volume and low volume products. Therefore, this allocation method is incorrect. ii. ABC systems uses different cost drivers for different activities so that they are more accurate cause of cost because they indicate the cause and effect relationship between the cost drivers and cost objectives. Therefore, the final product will show the correct resource usage per product. We assumed that ABC systems is more appropriate for costing high volume, low volume because firstly, the activity cost pool do not have the same cost driver and secondly, two products use the activities different per unit oof products. Activity

Cost
Activity cost driver
Paper machine OPeration

Machine Hours
Finishing machine operation

Machine Hours
Design

Design Hours

iii. Total cost of Sand W: $1,160,000 ( $500,000+$600,000)
Total quantity of LVP: $40,000 (20%* $200,000)
Fee of S and W: 1,160,000/40,000= 29/ton
iv.we disagree with Tuan proposal because his idea just focuses on the average profit of both high and low volume product. However, it may be correct in term of marketing side. The reason why Tuan gives this proposal b/c he compares the profit between high and low volume products: - Low volume products; lower sale, higher profit

- High volume products: higher sale, lower profit
Thus, inefficiency allocation
We just to allocate appropricate cost for high volume no need to drop...
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