ACTI VI TY BASED COSTI NG Ques t i on 1: SuperTes t i ngLabs( STL)per f orms msXr ays,ul t r asounds,CTscans,andMRI s.STLhas
devel opedar eput at i on asat opRadi ol ogyCent eri nt hest at e.STLhasachi evedt hi sst at usbecause i tconst ant l yreexami nesi t spr ocessesand pr ocedur es.STL has been usi nga si ngl e,f aci l i t ywi de ov er head al l ocat i on r at e. The VP of Fi nance bel i ev es t hat STL can make bet t er pr oces s i mpr oveme ment si fi tusesmo moredi saggregat ed costi nf orma mat i on.Shesays,“ Wehavest at eoft heart medi cali magi ngt echnol ogy.Can’ twehavest at eoft heartaccount i ngt echnol ogy?” SuperTest i ngLabs Budget edI nf orma mat i on Fort heYearEndedMa May30,2011
Techni ci anl abor Depr eci at i on Mat er i al s Admi ni st r at i on Mai nt enance Sani t at i on Ut i l i t i es Numberofpr ocedur es Mi nut est ocl ean af t ereach procedure Mi nut esf oreachpr ocedur e
Xr ays Ul t r asound CT scan MRI Tot al $64, 000 $104, 000 $119, 000 $106, 000 $393, 000 136, 800 231, 000 400, 200 792, 000 1560, 000 22, 400 16, 500 23, 900 30, 800 93, 600 19, 000 260, 000 267, 900 121, 200 $223, 200 $351, 500 $543, 100 $928, 800 $2, 714, 700 2, 555 4, 760 3, 290 2, 695 10 10 20 40
5
20
15
40
STL oper at es atf ul lcapaci t y .On anal yz i ng aboutt he nat ur e ofeac h act i vi t y ,t he account i ng depart menthast hef ol l owi ngobserv at i ons: 1.Admi ni st r at i on i s pri mari l yr el at ed t or egi st r at i on,col l ect i on,r eportgener at i on and ot her anci l l ary servi ces.Regi st r at i on i s done separ at el yf or each t estand a separ at er eporti s gener at ed f oreach t est .Theact i vi t i esarei ndependentofeffortorm ma at eri ali nvol ved i nt he t e s t s . 2.Ast heset est sar edoneusi ngst at eoft hear tmachi neswh whi charever ycapi t ali nt ensi ve.The comp mpanyhast akenacomp mpr ehensi veAMC f ort hel ab.Theser vi ceprov i derusual l yconsi der s costoft heequi pmentasbasefigur ef orarr i vi ngatAMC charge s 3.T . Thesani t at i on ser vi ce shav ebee n out sour ce dt ot het hi r d par t y whi ch depl oyst hema man poweront hebasi sofcl eani ngrequi r eme ment saf t ereach t est . 4.A . Al lmachi nesar eaut oma mat i cand consume memo mor eorl es ssame mepowerf orast andar d uni tof t i me. Requi r ed:
1.Cal cul at et hebudget edcostpers ervi cef orXr ays,Ul t r asounds,CTscans,andMRI susi ngdi r ect
t echni ci anl aborcost sast heal l ocat i on basi s. 2.I de nt i f ycos tdr i v e r sf ore ac hoft hei ndi r e c tc os tpool . 3. Cal cul at et hebudget edcostperserv i ceofXr ays,Ul t r asounds,CTscans,andMRI si fSTL
al l ocat edoverheadcost susi ngact i vi t ybasedcost i ng. 4. Expl ai nhow t hedi saggregat i onofi nf ormat i oncoul dbehel pf ult oSTL’ si nt ent i ont o
cont i nuousl yi mpr ovei t sservi ces.
Quest i on 2: EXE El ect r oni cs,a di vi si on ofEl gi n Corpor at i on,manuf act ur es t wo l ar gescr een
t el evi si on model s:t heMonarc h,whi chhasbeenpr oducedsi nce2006,andsel l sf or$900,andt he Regal ,anewermodeli nt r oducedi nearl y2009t hatsel l sf or$1, 140. Based on t he f ol l owi ng i ncome st at ement f or t he year ended Nov ember 30, 2010, seni or managementatEl gi n havedeci ded t oconce nt r at eEXE’ smar ket i ngr es our ce son t heReg almodel and t o begi nt o phaseoutt heMonar ch modelbecauseReg alge ner at esa much bi ggeroper at i ng i ncomeperuni t . EXE El ect r oni cs I ncomeSt at ement Fort heFi scalYearEndedNovember30,2010 Monar ch Revenues $19, 800, 000 Costofgoodssol d 12, 540, 000 Gr ossmar gi n 7, 260, 000 Sel l i ngandadmi ni st r at i veexpenses 5, 830, 000 Oper at i ngi nc ome $1, 430, 000 Uni t spr oducedandsol d 22, 000 Oper at i ngi ncomeperuni tsol d $65. 00
Regal $4, 560, 000 3, 192, 000 1, 368, 000 978, 000 $390, 000 4, 000 $97. 50
Tot al $24, 360, 000 15, 732, 000 8, 628, 000 6, 808, 000 $1, 820, 000
Det ai l sf orcostofgoodssol df orMonar chandRegalareasf ol l ows: Monar ch Regal Tot al PerUni t Tot al PerUni t Di r ectmat er i al s $4, 576, 000 $208 $2, 336, 000 $584 a Di r ectmanuf act ur i ngl abor 396, 000 18 168, 000 42 b Machi necost s 3, 168, 000 144 288, 000 72 Tot aldi r ectcost s $8, 140, 000 $370 $2, 792, 000 $698 c Manuf act ur i ngove r headcost s $4, 400, 000 $200 $400, 000 $100 Tot alcostofgoodssol d $12, 540, 000 $570 $3, 192, 000 $798 a. Monarc hr equi r es1. 5hour speruni tandRegalr equi r es3. 5hour speruni t .Thedi r ectmanuf act uri ngl aborc ost i s$12perhour .
b. Machi necost si ncl udel easecost soft hemachi ne,r epai r s,andmai nt enance.Monar chr equi r es8machi nehour s peruni tandRegalr equi r es4machi nehour speruni t .Themachi nehourr at ei s$18perhour . c. Manuf act uri ngover headcost sar eal l ocat edt opr oduct sbasedonmachi nehour satt her at eof$25perhour .
EXE’ scont r ol l er ,Susan Benzo,i sadvocat i ngt heuseofact i vi t ybased cost i ngand act i vi t ybased manage mentand has gat her ed t he f ol l owi ng i nf or mat i on aboutt he company’ s manuf act ur i ng ove r headcost sf ort hey earendedNovember30,2010.
Act i vi t y Cent er ( Cost Al l ocat i on Tot alAct i vi t y Base) Sol der i ng( numberofsol derpoi nt s)
Cost s $942, 000
Uni t soft heCost Al l ocat i onBase Monar ch Regal Tot al
1, 185, 00 0 16, 200 56, 200
385, 000 1, 570, 000
Shi pment s( numberofshi pment s) $860, 000 3, 800 20, 000 Qual i t y cont r ol ( number of $1, 240, 000 21, 300 77, 500 i nspect i ons) Pur chaseor der s( numberofor der s) $950, 400 80, 100 109, 980 190, 080 Machi nepower( machi nehour s) $57, 600 176, 000 16, 000 192, 000 Machi neset ups( numberofset ups) $750, 000 16, 000 14, 000 30, 000 Tot almanuf act ur i ngover head $4, 800, 000 Af t ercompl et i ngheranal ysi s,Benz oshowst her esul t st oFr ed Duval ,t heEXE di vi si on pr esi dent . Duvaldoesnotl i kewhathesees.“ I fyou show headquart er st hi sanal ysi s,t heyaregoi ngt oaskus t o phaseoutt heRegall i ne,whi ch wehavej usti nt r oduced.Thi swhol ecost i ngst uff has been a maj orpr obl em f orus.Fi r stMonarc hwasnotpr ofit abl eandnow Regal . ” “ Looki ngatt heABC anal ysi s,Iseet wopr obl ems.Fi r st ,wedomanymor eact i vi t i est han t heones you have l i st ed.I fyou had i ncl uded al lact i vi t i es,maybe yourconcl usi ons woul d be di ffer ent . Sec ond,you use d numberofse t upsand numberofi nspec t i onsasal l ocat i on bases.Thenumber s woul d be di ffer ent had you used set uphour s and i nspect i onhour si nst ead. I know t hat measur ementpr obl emspr ecl uded you f r om usi ngt heseot hercos t al l ocat i on bases,butIbel i ev e you oughtt o makesomeadj ust me nt st o ourcur r entnumber st o compensat ef ort hesei ssues.I know youcandobet t er .Wecan’ taffor dt ophaseoutei t herpr oduct . ” Benzoknowst hathernumber sar ef ai r l yaccur at e.Asaqui ckcheck,shecal cul at est hepr ofit abi l i t y ofRegaland Monarc h usi ngmoreand di ffer ental l ocat i on bases.Thesetofact i vi t i esand act i vi t y r at esshe had use dr es ul t si n number st hatcl osel y approxi mat et hosebased on mor e det ai l ed anal yses.Shei sconfidentt hatheadquart er s,knowi ngt hatRegalwasi nt r oducedonl yrec ent l y ,wi l l notask EXE t ophasei tout .Shei sal soawaret hatasi zabl eport i on ofDuval ’ sbonusi sbased on di vi si on r evenues.Phasi ngoutei t herproductwoul dadver sel yaffecthi sbonus.St i l l ,shef eel ssome pre ss ur ef r om Duvalt odosome t hi ng. Requi r ed:
1.Usi ng act i vi t ybased cost i ng,cal cul at et he gr oss marg i n peruni toft he Regaland Monarc h
model s. 2.Expl ai n bri efly why t hes e number s di ffer f r om t he gr oss mar gi n per uni toft he Reg aland
Monarc hmodel scal cul at edusi ngEXE’ sexi st i ngsi mpl ecost i ngsyst em. 3.CommentonDuval ’ sconce r nsaboutt heacc ur acyandl i mi t at i onsofABC. 4. How mi ghtEXE findt heABC i nf or mat i onhel pf uli nmanagi ngi t sbusi nes s?
