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Serial Problem — SP 17
1. Setting up machines Batch level
2. Direct materials $2,500
3. Setting up machines $20,000/25 batches $800/batch
Inspecting components $7,500/5,000 parts $1.50/part
Providing utilities $10,000/5,000 machine hours $2.00/MH
Direct materials $2,500
4. ABC gives a better representation of the cost of producing Job 6.15
because it reflects the resources consumed in the production
Financial & Managerial Accounting, 5th Edition
1000
Reporting in Action — BTN 17-1
1. Examples of activities at Polaris and Arctic Cat:
• Ordering raw materials
• Receiving raw materials
2. Polaris and Arctic Cat are considered manufacturing enterprises
some costs.
Comparative Analysis — BTN 17-2
1.
POLARIS
For Year Ended ($ millions)
Dec. 31,
2011
Dec. 31,
2010
Revenues ................................................................
$2,656.9
$1,991.1
Expenses* ................................................................
2,331.1
1,787.3
Expenses/Revenues ...................................................
0.877
0.898
*Cost of sales plus total operating expenses
ARCTIC CAT
For Year Ended ($ millions)
Mar. 31,
2011
Mar. 31,
2010
Revenues ................................................................
$464.7
$450.7
Expenses* ................................................................
446.5
449.4
Expenses/Revenues ...................................................
0.961
0.997
*Cost of goods sold plus total operating expenses
Arctic Cat has a higher ratio of expenses to revenues in both years.
2. Arctic Cat may want to analyze its costs in terms of the activities it is
engaged in. It might be doing things that incur costs, without aiding
productivity.
3. Some activities associated with opening a new retail location include:
Ethics Challenge — BTN 17-3
1. Employees have the responsibility to be honest when asked for
2. Depending on your position, it may be appropriate to determine if the
redundancy is justified. This would certainly be the responsibility of
3. Your responsibility is to report accurately and objectively. If there
4. Consider:
• Are you being objective?
• Is the activity you observed happening on a regular basis, or was
Communicating in Practice — BTN 17-4
TO: [Name], CEO
FROM: [Student name], Cost Analyst
RE: Activity Based Costing
Traditional methods of product costing have typically assigned
manufacturing overhead costs based on direct labor hours, direct labor
cost, or machine hours. These bases are all highly correlated with the
volume of output. Plantwide and departmental overhead rates based on
these measures are therefore appropriately referred to as “volume-based.”
While the total costs being assigned to products using volume-based
methods may be the same as the costs assigned in activity-base costing,
ABC differs in that it focuses on the consumption of resources (i.e. inputs)
occur.
An advantage of ABC is that it more accurately divides the total costs
among various product lines based on the resources that go into those
products. Disadvantage of ABC are that it can be difficult and costly to
implement.
Taking It to the Net — BTN 17-5
Activity-based costing is tested on Part 1 “Financial Planning,
Performance, and Control.” Major topics for this part of the exam include
planning, budgeting, and forecasting; performance management, cost
Teamwork in Action — BTN 17-6
Instructor note: Student answers to this problem will depend on the
restaurant visited.
1-2. Filling an order at a typical fast-food establishment may involve
several people:
3. Some costs in a fast-food restaurant:
• Ingredients
• Paper products
Entrepreneurial Decision — BTN 17-7
1. New Belgium Brewing Company would need to:
• Create the product (or contract with someone to do this)
2. Generally, we would want to assign the costs associated with product-
specific activities to the products that consumed them, so we would not
want the cost of new products to be assigned to existing products. If
Hitting the Road — BTN 17-8
Refer to the TEAMWORK IN ACTION assignment. Students could make
individual observations about various fast-food restaurants and pool their
information. Alternatively, groups could go together to observe operations
and prepare reports based on their combined efforts.
Global Decision — BTN 17-9
1. KTM’s three largest geographic segments are:
KTM
Net sales (€ millions)
2011
Other European ...........................................................
€301.5
North America .............................................................
106.5
Other ................................................................
91.1
2. Piaggio’s three largest geographic segments are:
PIAGGIO
Net sales (€ millions)
2011
EMEA*/Americas .........................................................
€933.9
India ..............................................................................
395.0
Asia SEA** ................................................................
188
* Europe, the Middle East, and Africa.
** Southeast Asia.
3. Customer service activities likely vary greatly across geographic
markets. While all customers expect good service, differences in
language, cultural customs, business customs and laws, and the
availability of alternatives will vary across countries and will impact
