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    Accounting Problem

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    1. Based on what you have learned regarding ABC costing, please help Mary prepare a revised cost report by:
    a. Computing the overhead rate for various activities in the spirit of ABC
    b. Preparing a new cost report for the three products
    c. In your opinion how many cost pools will be sufficient for the ABC analysis

    2. Based upon the new cost data:
    a. Do you agree with the marketing manager that "Big-Buck" is losing its competitiveness on the Standard Model?
    b. Suggest ways to improve the cost structure of the Deluxe and Specialty models

    3. Based on the existing cost structure (i.e. same number of setups and processing time), what are your recommendations for the product mix (i.e. Standard, Specialty and Deluxe) and the corresponding pricing strategy?

    Assembly hours are indicated as NA, so only way to calculate activity level for other overhead costs is by assuming assembly hours equal to machining hours (0.8*10,000). In absence of data this is a fair assumption.

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    Solution Summary

    Excel file contains solution of a activity based costing problem.