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# Strategic Cost Management Problems

Solve Problems 1 and 2 with full formula explanation, explain into detail all words. Every formula used need to be quoted this will help me to understand better when studying for my exam.

#2 Alternate Questions

1. Blader Co. manufactures a variety of electric razors used by both men and women. The company's plant is partially automated. The company uses an activity-based cost system. Listed below is cost driver information used in the product-costing system:

Two current product orders had the following requirements:

a. Utilizing ABC, how much overhead is assigned to the order for men's razors?
b. Utilizing ABC, how much overhead is assigned to the order for women's razors?

2. Demski Company has used a two-stage cost allocation system for many years. In the first stage, plant overhead costs are allocated to two production departments, P1 and P2 based on machine hours. In the second stage, Demski uses direct labor hours to assign overhead costs from the production departments to individual products A and B.

Budgeted factory overhead costs for the year are \$300,000. Both the budgeted and actual machine hours in P1 and P2 are 12,000 and 28,000 hours, respectively.

After attending a seminar to learn the potential benefits of adopting an activity-based costing system (ABC), Ted Demski, the president of Demski Company, is considering implementing an ABC system. Upon his request, the controller at Demski Company has compiled the following information for analysis:

Demski manufactures two types of product A and B, for which the following information is available:

Required:
(a) Determine the unit cost for each of the two products using the traditional two-stage allocation method.

(b) Determine the unit cost for each of the two products using the proposed ABC system.

(c) Compare the unit manufacturing costs for product A and product B computed in requirements a and b.
(1) Why do two the cost systems differ in their total cost for each product?

(2) Why might these differences be important to the Demski Company?

#### Solution Preview

1. b. Blader needs to assign overhead to the order for women's razors. The machine depreciation cost pool has a budgeted overhead cost of 202,500 and the budgeted cost driver level of 25,000 and the cost driver is machine hours, so depreciation allocated to women's blades is (202,500/25,000) X 60 = \$486.. The factory depreciation cost pool has a budgeted overhead cost of 154,940 and the budgeted cost driver level of 25,400 and the cost driver is machine hours, so depreciation allocated to women's blades is ...

#### Solution Summary

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