Mgmt 122 Case 1
Daniel Shamooelian, Mike Mahgerefteh
Professor Litt
Management 122
31 October 2014
Case Assignment 1
Upside Down, Incorporated designs custom storage spaces to eliminate clutter in both residential and business settings. The following data pertain to a recent reporting period. Requirements
a. Use ABC to compute overhead rates for each activity.
b. Assign costs to a 3,000 square foot job that requires 70 contact hours, 20 design hours, and 14 days to complete.
a. Client Consultation: $100,000/500 contact hours=$200 per contact hr
Drawings: $75,000/1,000 design hours=$75 per design hr
Models: $25,000/20,000 square feet=$1.25 per square ft
Supervision: $43,750/250 days=$175 per day
Billings: $52,500/150 jobs=$350 per job
b. Client Consultation: $200 per contact hr times 70 contact hrs =$14,000
Drawings: $75 per design hr times 20 design hrs =$1500
Models: $1.25 per square ft times 3,000 square ft =$3750
Supervision: $175 per day times 14 days =$2450
Billings: $350 per job times 1 job =$350
Total Costs $22,050
Difference b/w traditional and activity based costing
In the field of accounting, activity-based costing and traditional costing are two different methods for allocating overhead costs to products. In traditional costing systems, all manufacturing costs are assigned to products whether or not they are caused by the products. Furthermore, nonmanufacturing costs are not assigned to products, even those nonmanufacturing costs that are caused by the products. On the other hand, in activity based costing, nonmanufacturing costs as well as manufacturing costs may be assigned to products. Another difference is that in traditional costing the entire factory may have only one overhead cost pool and one measure of activity such as direct labor hours, while activity based costing has a number of overhead cost pools, each of
Professor Litt
Management 122
31 October 2014
Case Assignment 1
Upside Down, Incorporated designs custom storage spaces to eliminate clutter in both residential and business settings. The following data pertain to a recent reporting period. Requirements
a. Use ABC to compute overhead rates for each activity.
b. Assign costs to a 3,000 square foot job that requires 70 contact hours, 20 design hours, and 14 days to complete.
a. Client Consultation: $100,000/500 contact hours=$200 per contact hr
Drawings: $75,000/1,000 design hours=$75 per design hr
Models: $25,000/20,000 square feet=$1.25 per square ft
Supervision: $43,750/250 days=$175 per day
Billings: $52,500/150 jobs=$350 per job
b. Client Consultation: $200 per contact hr times 70 contact hrs =$14,000
Drawings: $75 per design hr times 20 design hrs =$1500
Models: $1.25 per square ft times 3,000 square ft =$3750
Supervision: $175 per day times 14 days =$2450
Billings: $350 per job times 1 job =$350
Total Costs $22,050
Difference b/w traditional and activity based costing
In the field of accounting, activity-based costing and traditional costing are two different methods for allocating overhead costs to products. In traditional costing systems, all manufacturing costs are assigned to products whether or not they are caused by the products. Furthermore, nonmanufacturing costs are not assigned to products, even those nonmanufacturing costs that are caused by the products. On the other hand, in activity based costing, nonmanufacturing costs as well as manufacturing costs may be assigned to products. Another difference is that in traditional costing the entire factory may have only one overhead cost pool and one measure of activity such as direct labor hours, while activity based costing has a number of overhead cost pools, each of