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Managerial Accounting: ABC Systems

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Managerial Accounting Questions
1. Should Activity Based Costing (ABC) be implemented in all organizations? Please explain.
2. Accountants want not to assign costs to the wrong jobs. What problem(s) does assigning cost to the wrong job cause?
3. Why is an organization that has a long-run focus more likely to implement ABC than one that has a short-term focus?

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Managerial Accounting Questions

1. Should Activity Based Costing (ABC) be implemented in all organizations? Please explain.

ABC should be implemented in companies where it is feasible to do so. An ABC system comes with certain disadvantages. The company must have the resources in place to implement the ABC system. This can become a financial burden to smaller companies. If the company is able to implement and then continually support the ...

Solution Summary

This solution answers three questions regarding managerial accounting and activity based costing.

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Management Accounting for Sweditrak Corporation: Proposed ABC system

See the attached file.

Sweditrak Corporation manufactures two models of its exercise equipment: regular (REG) and deluxe (DLX). Its plant has two production departments, fabrication (FAB) and assembly (ASM), and two service departments, maintenance (MNT) and quality control (QLC). The parts for each model are manufactured in the fabrication department and put together in the assembly department. The maintenance department supports both production departments, and QLC performs all inspections for both production departments. Each unit of both products needs one inspection in each production department. Each inspection takes 30 and 60 minutes for REG and DLX models, respectively. The two production departments have set the following standards for direct material cost, direct labor cost, and machine hours for each unit of product:
Fabrication Assembly
Item REG DLX REG DLX
Direct materials cost $40.00 $80.00 $10.00 $20.00
Direct labor cost $20.00 $40.00 $20.00 $30.00
machine hours 2.0 3.0 1.0 2.0

The average wage rate for direct labor is $10 per hour. The following table gives the production volume and support costs for the past two weeks:

Production Volume Support Costs
Week REG DLX MNT QLC
45 450 430 $35,000 $6,310
46 450 450 $35,400 $6,350

The present cost accounting system assigns support costs in MNT to the production departments on the basis of machine hours and assigns QLC costs to the two production departments on the basis of the number of inspections. The accumulated costs in FAB and ASM are applied to products based on direct labor hours.
The company is considering implementing and activity-based costing system using machine hours as the cost driver for MNT cost and inspection hours as the cost driver for QLC cost.

A. Using the present cost accounting system, determine the product costs per unit for each of the two weeks.
B. Using the proposed ABC system, determine the unit product costs for each product for each of the two weeks.

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