ACC 207 Final Project Milestone Three-Classifying a company’s costs allows

ACC 207

Final Project

Milestone Three

Guidelines and Rubric

Overview: Classifying a company’s costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost-volume-profit analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used by key decision makers.

For Milestone Three, you will make a recommendation to the MDE management team on whether the company should switch from process costing to activity-based costing (ABC) for the bird feeder division. This is an exploratory discussion, but management would like to know more about the differences between the two costing systems and if a different costing system might work better for the company. Using the Excel spreadsheet with the completed data that is attached. Submit a 2–3 page Word document that addresses all of the critical elements below of Section III.

Specifically, the following critical elements must be addressed:

III. Main Costing Systems – Activity-Based Costing vs. Process Costing

a) Identify the cost allocation system that would benefit this company most. Justify your response.

b) Does this cost allocation system meet management planning and control goals? Explain.

c) What are the ethical implications that should be considered with this cost allocation system?

d) Describe the ethical implications of direct costs versus indirect costs. What considerations should be made when selecting one of these two?

Guidelines for Submission:

Your paper must be submitted as a 2–3 page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins.

Milestone One, Part I Product Costs
Materials - Cedar
Materials - Plastic
Factory Worker Labor
Materials - Indirect
Factory Depreciation
Factory Utilities
Factory Maintenance and Repairs Product costs consist of all of the materials, labor and other costs
that can be directly connected to a product being manufactured.
These costs also include indirect costs that are incurred in
manufacturing that specific product. These costs are assets on
the balance sheet and when the product is sold they are counted
in Costs of Goods Sold. Period Costs
Shipping ($2.25/each)
Sales Commissions ($2.00/unit sold)
Office Rent
Advertising
Liability Insurance
Office Depreciation
Office Salaries Period costs are the costs assocaited with supporting the
manufacturing and can not be directly related to the product that
is being manufactured. Period costs are expensed in the period
they are incurred and are not on the balance sheet. labor and other costs
being manufactured.
are incurred in
costs are assets on
sold they are counted upporting the
ed to the product that
ensed in the period
e sheet. Milestone One, Part II
Use Table I on the MDE Manufacturing Budget to complete your calculations. 50,000
Units
Sales Price per Unit
Variable Costs
Materials - Cedar
Materials - Plastic
Factory Worker Labor
Materials - Indirect
Shipping ($2.25/ea)
Sales Commissions ($2/unit sold) Totals
Budget
$ 21.00 4.50 225,000
0.75 37,500
300,000
3,000
112,500
100,000 Variable Cost per Unit 16 Contribution Margin 5.44 Fixed Costs
Factory Depreciation
Factory Utilities
Factory Maintenance and Repairs
Office Rent
Advertising
Liability Insurance
Office Depreciation
Office Salaries
Total Fixed Costs Using Budgeted Amounts
Breakeven Point - Using Actual Amounts
+ 10,000 profit 78,000
12,000
5,000
12,000
20,000
5,000
1,000
48,000
181,000 Fixed Costs
Contribution Margin $
$ 181,000
5.44 (Fixed Costs + Target Profit)
Contribution Margin $
$ 190,500
3.63 $ 1,011,496
47,000 Using actual amounts(Fixed Cost + Target Profit + Current Variable Cost)
+ 10,000 profit
Current Total Units Totals
Actual
$ 21.10 248,160
37,741
332,760
2,585
105,750
94,000 47,000
Units 5.28
0.80 17
3.63 78,000
12,000
4,500
12,000
20,000
5,000
1,000
48,000
180,500 Breakeven Point - 33,272 Units at Current Sales Price - 52,450 New Contribution Margin
Current Variable Costs
New Sales Price $ 21.52 Milestone Two, Part I
Use Tables I through IV on the MDE Manufacturing Budget to complete your calculations.
Refer to Exhibit 7-2 on page 253 of the text Budget Model Units Sold
Revenues
Variable Costs
DM-Plastic
DM-Cedar
Direct Manuf. Labor
Variable Manuf. Overhead
Total Variable Costs
Fixed Manuf. Overhead
Total Costs
Gross Margin Actual
47,000 Flexible Budget
Variance Favorable/
Unfavorable $991,700 $4,700 Favorable 37,741
248,160
332,760
2,585
621,246
94,500
715,746
275,954 2,491
36,660
50,760
(235)
89,676
(500)
89,176
(84,476) Unfavorable
Unfavorable
Unfavorable
Favorable
Unfavorable
Unfavorable
Favorable From Flexible
Budget
Calculations
Sheet
Flexible Budget
47,000 Sales Volume
Variance $987,000 ($63,000) 35,250
211,500
282,000
2,820
531,570
95,000
626,570
360,430 (2,250)
(13,500)
(18,000)
(180)
(33,930) Favorable/
Unfavorable Unfavorable
Favorable
Favorable
Favorable
Favorable
Favorable (33,430) Favorable
(29,570) Favorable Static Budget
50,000
$1,050,000
37,500
225,000
300,000
3,000
565,500
94,500
660,000
390,000 Milestone Two, Part II
Use the variance supporting calculation tab to complete your calculations. Direct Materials - Cedar
Direct Materials - Plastic
Direct Labor Variable Manufacturing Overhead Price Variance
(22,560.00)
(2,740.10)
5,640.00
Spending Variance
(235.00) Efficiency Variance
(14,100.00)
(3,525.00)
(56,400.00)
Efficiency Variance
470.00 Revenues
Variable Costs
DM-Plastic
DM-Cedar
Direct Manuf. Labor
Variable Manuf. Overhead
Total Variable Manufacturing Costs
Fixed Manufacturing Overhead
Total Manufacturing Costs
Gross Margin Budgeted Unit
Amounts
$
21.00
$0.75
$4.50
6.00
0.06 Actual Volume
47,000
47,000
47,000
47,000
47,000 Flexible Budget
Amount
$987,000
35,250
211,500
282,000
2,820
531,570
94,500
626,070
$360,930 Use Tables III and IV on the MDE Manufacturing Budget to complete your calculations. Development of Price and Efficiency Variances - Calculatio DM-Plastic
DM-Cedar Actual Feet per
Unit
1.1
3.2 Direct Manuf. Labor Actual Labor
Cost per Hour
$
11.80 Actual Costs Incurred
(Actual Input Qty. × Actual Price) Actual Feet per
Unit Actual Units
Direct Material
Plastic 47,000
$ Direct Material
Cedar 47,000
$ Actual Units
Direct
Manufacturing
Labor 47,000 $
$ Actual Price per
Unit 1.1 $
41,515
$ 3.2 $
248,160
$ Actual Hours per
Unit Actual Input Qty. × Budgeted Pric 0.80 47,000 (2,740)
Price Variance 1.65 47,000 (22,560)
Price Variance Actual Cost per
Hour 0.60 $
332,760
$ Actual Units Actual Units 11.80
5,640
Price Variance 47,000 Actual Input Qty. × Budgeted Pric Actual Costs
Actual Costs
Variable
manufacturing
overhead $
$ Actual Units 2,585
2,585 47000
$ (235)
Spending Variance e and Efficiency Variances - Calculations Actual Feet
Used
51,700
150,400 Actual Units
47,000
47,000 Actual Cost per
Actual Cost
Unit
37,741 $
0.80
248,160 $
5.28 Actual Labor Actual Labor
Actual Labor
Costs
Hours
Actual Units
Hours per Unit
$
332,760
28,200
47,000
0.60 Flexible Budget
(Budgeted Input
Qty. Allowed for
Actual Output
× Budgeted Price) Actual Input Qty. × Budgeted Price Actual Feet per Budgeted Cost
Unit
per Ounce $ $ 1.1 $
38,775
$ 3.2 $
225,600
$ Actual Hours
per Unit $
$ 0.75 47,000 Budgeted Cost per
Ounce
0.75 $ 1.0 $
35,250 1.50 $ 3.0 $
211,500 (3,525)
Efficiency Variance 1.50 47,000 (14,100)
Efficiency Variance Budgeted Cost
per Hour 0.60 $
338,400
$ Budgeted Feet
per Unit Actual Units Actual Units 12.00 Budgeted Hours Budgeted Cost per
per Unit
Hour 47,000
$ (56,400)
Efficiency Variance 0.5 $
282,000 12.00 Flexible Budget
(Budgeted Input
Qty. Allowed for
Actual Output
× Budgeted Price) Actual Input Qty. × Budgeted Price
Actual Feet per Budgeted Cost
Unit
per Foot $ 0.25 $
2,350
$ Actual Units 0.20 Budgeted Feet
per Unit 47000
$ 470
Efficiency Variance Budgeted Cost per
Foot 0.3 $
2,820 0.20 I believe that all of the yellow highlighted cells should read "per Unit" and not "per Ounce"