The following table shows in the various cost reports:
|
Particulars |
Adams |
Betz |
Chatham |
Dedham |
Elm |
General |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed costs allocated |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Costs |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Particulars |
Adams |
Betz |
Chatham |
Dedham |
Elm |
General |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
1,47,000.00 |
1,17,200.00 |
2,18,400.00 |
1,15,720.00 |
57,040.00 |
|
6,55,360.00 |
|
|
Discounts |
23,400.00 |
|
|
|
3,660.00 |
|
27,060.00 |
|
|
Fixed costs |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total costs |
2,12,950.00 |
1,59,750.00 |
2,63,786.67 |
1,61,106.67 |
1,06,086.67 |
1,19,140.00 |
10,22,820.00 |
|
|
|
|
|
|
|
|
|
|
|
The following is the profitability analysis:
|
Particulars |
Adams |
Betz |
Chatham |
Dedham |
Elm |
General |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
2,34,000.00 |
1,88,800.00 |
3,57,380.00 |
1,47,840.00 |
73,200.00 |
|
10,01,220.00 |
|
|
Less: direct costs |
1,47,000.00 |
1,17,200.00 |
2,18,400.00 |
1,15,720.00 |
57,040.00 |
|
6,55,360.00 |
|
|
Less: discount |
23,400.00 |
|
|
|
3,660.00 |
|
27,060.00 |
|
|
Less: fixed costs |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit earned |
21,050.00 |
29,050.00 |
93,593.33 |
-13,266.67 |
-32,886.67 |
-1,19,140.00 |
-21,600.00 |
|
|
|
|
|
|
|
|
|
|
|
The report talks about the concept of ABC costing which means the allocation of the costs on the basis of some drivers that drives those costs. This report further throws light on the profitability analysis of these departments.
The total fixed costs of the company comes to be $340400 which is divided on the basis of costing drivers. These are allocated on the basis of the judgment of the management or the past experience or on the basis of some estimate.
The allocated costs comes to be the following:
|
Particulars |
Adams |
Betz |
Chatham |
Dedham |
Elm |
General |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed costs allocated |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Costs |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
Secondly, talking about the total costs that have been allocated to each and every department. The following are the desired costs:
|
Particulars |
Adams |
Betz |
Chatham |
Dedham |
Elm |
General |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs |
1,47,000.00 |
1,17,200.00 |
2,18,400.00 |
1,15,720.00 |
57,040.00 |
|
6,55,360.00 |
|
|
Discounts |
23,400.00 |
|
|
|
3,660.00 |
|
27,060.00 |
|
|
Fixed costs |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Total costs |
2,12,950.00 |
1,59,750.00 |
2,63,786.67 |
1,61,106.67 |
1,06,086.67 |
1,19,140.00 |
10,22,820.00 |
|
|
|
|
|
|
|
|
|
|
|
The total amounts of the costs that are being incurred have now reached $10,22,820.
Now, if we analyse the profits that the company has earned from each of the customer and also as the whole, then we get losses which could be seen form the below table:
|
Particulars |
Adams |
Betz |
Chatham |
Dedham |
Elm |
General |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
2,34,000.00 |
1,88,800.00 |
3,57,380.00 |
1,47,840.00 |
73,200.00 |
|
10,01,220.00 |
|
|
Less: direct costs |
1,47,000.00 |
1,17,200.00 |
2,18,400.00 |
1,15,720.00 |
57,040.00 |
|
6,55,360.00 |
|
|
Less: discount |
23,400.00 |
|
|
|
3,660.00 |
|
27,060.00 |
|
|
Less: fixed costs |
42,550.00 |
42,550.00 |
45,386.67 |
45,386.67 |
45,386.67 |
1,19,140.00 |
3,40,400.00 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit earned |
21,050.00 |
29,050.00 |
93,593.33 |
-13,266.67 |
-32,886.67 |
-1,19,140.00 |
-21,600.00 |
|
|
|
|
|
|
|
|
|
|
|
From the above table, it could be seen that the company earns a loss of $21,600 in total. If we break this down, then we realise that Dedham and Elm is giving us losses. Though Chatham is able to earn profit for the company but these losses along with the general losses are so much that the total amount is going into losses. Hence, the company is not bale to earn profit even when it is working so hard to do so.
On top of that the company is giving cash discounts to its customers.
The company is working very hard to generate in profits. Hence, though the technique of the company of allocating these fixed costs is in line with the profit objective but its rules and policies may not be so strong that the company generates in profits.
ABC costing technique is the method through which the costs are identified these are then loaded into the secondary pools, primary cost pools are loaded, the various drivers of the activities are measured, the secondary costs are allocated into the primary pools and the costs are charged on the basis of these cost objects (Accounting tools, 2018).
In order to generate in profits, the company could do the following:
The following table shows the calculation of contribution per hour:
|
|
Semiconductor Division |
|
|
|
Particulars |
Super-chip |
Okay-chip |
|
|
|
|
|
|
|
Direct materials |
5.00 |
2.00 |
|
|
Direct manufacturing labour |
60.00 |
20.00 |
|
|
|
|
|
|
|
Annual F overhead |
40,000.00 |
|
|
|
|
|
|
|
|
Capacity |
45000 hours |
|
|
|
|
|
|
|
|
Particulars |
Super-chip |
Okay-chip |
|
|
|
|
|
|
|
Selling price |
80.00 |
26.00 |
|
|
Less: variable cost: |
|
|
|
|
Direct material |
5.00 |
2.00 |
|
|
Direct manufacturing labour |
60.00 |
20.00 |
|
|
|
|
|
|
|
Contribution |
15.00 |
4.00 |
|
|
Divided by the number of hours |
3.00 |
1.00 |
|
|
|
|
|
|
|
Contribution per hour |
5.00 |
4.00 |
|
|
|
|
|
|
Keeping in mind the total number of direct labour hours, the following number of units should be produced:
|
|
|
|
|
|
Particulars |
Number of hours per unit |
Number of units to be produced |
Total hours |
|
|
|
|
|
|
Super-chip |
3.00 |
15,000.00 |
45,000.00 |
|
|
|
|
|
|
Okay chip |
– |
15,000.00 |
– |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
45,000.00 |
|
|
|
|
|
The company should manufacture 15,000 units of Super Chips and 15,000 units of Okay chips.
The following are the relevant calculations:
|
Particulars |
Costs in $ |
|
|
|
|
|
|
Selling price of process control unit |
132.00 |
|
|
|
|
|
|
Less: variable costs: |
|
|
|
Direct labour |
70.00 |
|
|
Direct manufacturing labour |
45.00 |
|
|
|
|
|
|
Contribution per unit |
17.00 |
|
|
Number of direct labour hours |
3.00 |
|
|
|
|
|
|
Contribution per hour |
5.666666667 |
|
|
Particulars |
Costs in $ |
|
|
|
|
|
|
Selling price of process control unit |
145.00 |
|
|
|
|
|
|
Less: variable costs: |
|
|
|
Direct labour |
65.00 |
|
|
Direct manufacturing labour |
45.00 |
|
|
|
|
|
|
Contribution per unit |
35.00 |
|
|
Number of direct labour hours |
3.00 |
|
|
|
|
|
|
Contribution per hour |
11.66666667 |
|
Conclusion: the company must go for the production of the transfer of the Super chips at the price at which the company sells it to the outside. This would result in an increased amount of the revenue being generated for the company.
In the given question, the fixed costs have been ignored since these have to be incurred even if the company decides to stop its production.
The following table shows in the relevant calculations:
|
Particulars |
Costs in $ |
||
|
|
Super chips |
Process control unit |
Improved control unit |
|
Selling price of process control unit |
80.00 |
132.00 |
145 |
|
|
|
|
|
|
Less: variable costs: |
|
|
|
|
Direct labour |
5.00 |
70.00 |
65.00 |
|
Direct manufacturing labour |
60.00 |
45.00 |
45.00 |
|
|
|
|
|
|
Contribution per unit |
15.00 |
17.00 |
35.00 |
|
Number of direct labour hours |
3.00 |
3.00 |
3.00 |
|
|
|
|
|
|
Contribution per hour |
5 |
5.666666667 |
11.66666667 |
|
|
|
|
|
|
Total |
10.66666667 |
|
|
|
Total |
|
|
16.66666667 |
In order to achieve the goal congruence, the Semiconductor division must transfer the super chips at its variable cost since it can be seen that the total of the contribution of both the departments comes out to be $(5+5.67) =$10.67 and if the new improved control unit is sold, then the total contribution comes out to be $(5+11.67)=$16.67.
Yes, the answer would still be the same as above.
The following table shows in the relevant calculations:
|
Particulars |
Costs in $ |
||
|
|
Super chips |
Process control unit |
Improved control unit |
|
Selling price of process control unit |
80.00 |
132.00 |
145 |
|
|
|
|
|
|
Less: variable costs: |
|
|
|
|
Direct labour |
5.00 |
70.00 |
65.00 |
|
Direct manufacturing labour |
60.00 |
45.00 |
45.00 |
|
|
|
|
|
|
Contribution per unit |
15.00 |
17.00 |
35.00 |
|
Number of direct labour hours |
3.00 |
3.00 |
3.00 |
|
|
|
|
|
|
Contribution per hour |
5 |
5.666666667 |
11.66666667 |
|
|
|
|
|
|
Total |
10.66666667 |
|
|
|
Total |
|
|
16.66666667 |
In order to achieve the goal congruence, the Semiconductor division must transfer the super chips at its variable cost since it can be seen that the total of the contribution of both the departments comes out to be $(5+5.67) =$10.67 and if the new improved control unit is sold, then the total contribution comes out to be $(5+11.67)=$16.67.
Bragg, S. and Bragg, S. (2018). Activity based costing. [online] AccountingTools. Available at: https://www.accountingtools.com/articles/2017/5/14/activity-based-costing [Accessed 11 Sep. 2018].
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download
