Accg828

In: Business and Management

Submitted By feipeng
Words 1165
Pages 5
Solution to Case 8-1 Allied Office Products Prepared based on Instructor’s Manual to Accompany Anthony and Govindarajan’s Management Control Systems textbook.

1) Activity Based Costing service costs for the TFC business

Value added activities Storage Requisition handling Warehouse activity Pick Packing Data entry Desk top delivery

Total expense per activity $000 (1992) 1,550 1,801 761 734 612 250

Cost driver

Cost driver units (1992) 350,000 310,000 775,000 697,500 775,000 8,500

Cost per unit of cost driver $4.43 per carton* $5.81 $0.98 $1.05 $0.79 $30

Cartons in inventory Requisitions Carton lines Pick-pack lines Carton lines Per time

*$0.37 per carton per month NB Requisition handling could be charged per line rather than per requisition. Data entry could also be charged per requisition rather than per carton line. These changes would not alter the results significantly. Most of the expenses incurred in relation to each activity are probably fixed costs. Hence, the cost per unit of cost driver amounts reflect long run variable costs, not short run incremental costs. Is capacity being utilized? Would extra activity merely reduce the costs per unit of cost driver?

2) Calculation of distribution service costs for Customer A and Customer B Value added activities Storage Requisition handling Warehouse activity Pick Packing Data entry Desk top delivery Freight out Inactive inventory surcharge TOTAL SERVICE CHARGES – ABC BASIS Customer A 350 cartons x $4.43 = $1,551 364 requisitions x $5.81 = $2,115 910 lines x $0.98 = $892 910 lines x $1.05 = $956 910 lines x $0.79 = $719 $0 $2,250 $0 $8,483 Customer B 700 cartons x $4.43 = $3,101 790 requisitions x $5.81 = $4,590 2500 lines x $0.98 = $2,450 2500 lines x $1.05 = $2,625 2500 lines x $0.79 = $1,975 26 times x $30 = $780 $7,500 $315* $23,336

* $7000 inventory x 1.5% x 3 months = $315 NB You…...

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