Purchase the answer to view it
BYP17-2 Ideal Manufacturing Company of Sycamore, Illinois,
has supported a research and development (R&D) department that
has for many years been the sole contributor to the company's new
farm machinery products. The R&D activity is an overhead cost
center that provides services only to in-house manufacturing
departments (four different product lines), all of which produce
agricultural/farm/ranch related machinery products.
The department has never sold its services outside, but
because of its long history of success, larger manufacturers of
agricultural products have approached Ideal to hire its R&D
department for special projects. Because the costs of operating the
R&D department have been spiraling uncontrollably, Ideal's
management is considering entertaining these outside approaches to
absorb the increasing costs. But, (1) management doesn't have any
cost basis for charging R&D services to outsiders, and (2) it
needs to gain control of its R&D costs. Management decides to
implement an activity-based costing system in order to determine
the charges for both outsiders and the inhouse
users of the department's services.
R&D activities fall into four pools with the following
annual costs.
Market analysis $1,050,000
Product design 2,350,000
Product development 3,600,000
Prototype testing 1,400,000
Activity analysis determines that the appropriate cost
drivers and their usage for the four activities
are:
Total
Activities Cost Drivers Estimated Drivers
Market analysis Hours of analysis 15,000 hours
Product design Number of designs 2,500 designs
Product development Number of products 90 products
Prototype testing Number of tests 500 tests
Instructions
(a) Compute the activity-based overhead rate for each
activity cost pool.
(b) How much cost would be charged to an in-house
manufacturing department that consumed 1,800 hours of market
analysis time, was provided 280 designs relating to 10 products,
and requested 92 engineering tests?
(c) How much cost would serve as the basis for pricing an
R&D bid with an outside company on a contract that would
consume 800 hours of analysis time, require 178 designs relating to
3 products, and result in 70 engineering tests?
(d) What is the benefit to Ideal Manufacturing of applying
activity-based costing to its R&D activity for both in-house
and outside charging purposes?
Other samples, services and questions:
When you use PaperHelp, you save one valuable — TIME
You can spend it for more important things than paper writing.
