chapter 7a - solution manual.doc

8/14/2019 Chapter 7A - Solution Manual.doc

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Chapter 07A ABC Action Analysis

Appendix 07AABC Action Analysis

Exercise 7A-1(20 minutes)

Sales (80 clubs $48 per club)....................$3,840.0

0Green costs:Direct materials (80 clubs $25.40 per

club).........................................................$2,032.0

02,032.0

0Green marin................................................ !,808.00

"ello# costs:Direct labor (80 clubs 0.3 our per club $2!.50 per our)................................... 5!%.00

&n'irect labor............................................... 0.00

ar*etin e+penses.................................... 540.20!,!4%.2

0"ello# marin............................................... %%!.80e' costs:-actor e/uipment 'epreciation.................. !0%.40-actor a'ministration................................ 2%2.40Sellin an' a'ministratie #aes an'

salaries..................................................... 43%.00

Sellin an' a'ministratie 'epreciation.... .. 30.00834.8

0

e' marin...................................................$ (!13.00

)

ile not re/uire' in te problem, te conentional analsis#oul' be:

Sales (80 clubs $48 per club)....................$3,840.0

0osts:

Direct materials..........................................$2,032.0

0Direct labor................................................. 5!%.00

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6olume relate' oerea'........................... 283.20atc processin oerea'......................... 53.007r'er processin oerea'......................... !!8.80ustomer serice oerea'........................ !,0!0.00 4,0!3.00

ustomer marin.......................................... $ (!13.00)

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!. OrderSize

CustomerOrders

ProductTesting Selling Total

otal actiit 9or te or'er... !50 ! !8 3'irect

laborourscustomer

or'erpro'ucttestinours

sales calls

anu9acturin oerea':&n'irect labor.................... !,440 23! %48 0 2,3!-actor 'epreciation......... !,050 0 324 0 !,314-actor utilities................. 30 0 !8 0 48-actor a'ministration...... 0 4% 432 3% 5!4

Sellin an' a'ministratie:aes an' salaries........... !20 12 0 2,85 3,081Depreciation..................... 0 !! 0 !08 !!

a+es an' insurance......... 0 0 0 !41 !41Sellin e+penses............... 0 0 0 !,2% !,2%

otal oerea' cost............. 2,%40 3%0 !,422 4,482 8,04

;+ample: .%0 per 'irect laborour !50 'irect laborours < !,440ccor'in to tese calculations, te oerea' cost o9 te or'er #as 8,04. is arees#it te computations in ;+ercise 1%.

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Exercise 7A-2(continue')

2. e table prepare' in part (!) aboe allo#s t#o 'i99erentperspecties on te oerea' cost o9 te or'er. e columntotals tat appear in te last ro# o9 te table tell us te cost o9

te or'er in terms o9 te actiities it re/uire'. e ro# totalstat appear in te last column o9 te table tell us o# muc teor'er cost in terms o9 te oerea' accounts in te un'erlinaccountin sstem. noter #a o9 sain tis is tat tecolumn totals tell us #at te costs #ere incurre' for. e ro#totals tell us #at te costs #ere incurre' on. -or e+ample, ouma spen' mone ona cocolate bar to satis9 our crainforcocolate. ot perspecties are important. o controlcosts, it is necessar bot to *no# #at te costs #ere

incurre' 9or an' #at actual costs #oul' ae to be a'=uste'(i.e., #at te costs #ere incurre' on).

e t#o 'i99erent perspecties can be e+plicitl so#n as9ollo#s:

at te oerea' costs #ere spent on:anu9acturin oerea':

&n'irect labor........................... 2,3!-actor 'epreciation................ !,314-actor utilities........................ 48

-actor a'ministration............. 5!4Sellin an' a'ministratie:

aes an' salaries.................. 3,081Depreciation............................ !!

a+es an' insurance................ !41Sellin e+penses...................... !,2%

otal oerea' cost.................... 8,04

at te oerea' costs #ere incurre' for:7r'er si>e................................... 2,%40

ustomer or'ers......................... 3%0?ro'uct testin........................... !,422Sellin........................................ 4,482

otal oerea' cost.................... 8,04

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Supporting Direct

LaborBatch

Processing

OrderProcessin

gCustomerService Total

otal actiit 9or te or'er................ !,20 4 ! !'irect

laborours@

batces or'er customer

anu9acturin oerea':&n'irect labor.................................. $ 3,45% $288 $ !8 $ 0 $ 3,1%2-actor e/uipment 'epreciation..... !4,!!2 !3 0 0 !4,!25-actor a'ministration................... 4,032 28 28 2%8 4,35%

Sellin an' a'ministratie:aes an' salaries........................ %0 52 !53 !,8%4 3,02Depreciation................................... 0 3 % 2% 35ar*etin e+penses....................... 480 0 1 4%2 !,02!

otal oerea' cost.......................... $23,040 $384 $284 $2,%20$2%,32

8

;+ample: $!.80 per 'irect laborour !,20 'irect laborours < $3,45%

@!,20 'irect laborours < 0.8 'irect laborour per seat 2,400 seats

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The action analysis report for the customer can be constructed usin the ro! totals from theacti"ity rate table# orani$ed accordin to the ease of ad%ustment codes&

Sales ($!31.5 per seat 2,400 seats)........$33!,0

80Green costs:Direct materials ($!!2 per seat 2,400

seats)........................................................$2%8,8

002%8,8

00Green marin................................................ %2,280

"ello# costs:Direct labor ($!4.40 per seat 2,400

seats)........................................................ 34,5%0

&n'irect labor............................................... 3,1%2

ar*etin e+penses.................................... !,02

! 3,34

3"ello# marin............................................... 22,31e' costs:-actor e/uipment 'epreciation.................. !4,!25-actor a'ministration................................ 4,35%Sellin an' a'ministratie #aes an'

salaries..................................................... 3,02

Sellin an' a'ministratie 'epreciation.... .. 352!,54

5e' marin................................................... $ !,32

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Exercise 7A-4 (%0 minutes)

!. -irststae allocations o9 oerea' costs to te actiit cost pools:

Distribution of Resource ConsumptionAcross Activit Cost Pools

Direct

LaborSupport

Order

Processing Customer Support Other Totalsaes an' salaries... 30A 35A 25A !0A !00A7ter oerea' costs 25A !5A 20A 40A !00A

DirectLabor

Support

OrderProcessin

gCustomer Support Other Totals

aes an' salaries... $!05,000 $!22,500 $ 81,500 $ 35,000 $350,0007ter oerea' costs 50,000 30,000 40,000 80,000 200,000

otal cost.................. $!55,000 $!52,500 $!21,500 $!!5,000 $550,000

;+ample: 30A o9 $350,000 is $!05,000.

7ter entries in te table are 'etermine' in a similar manner.

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2. e actiit rates are compute' b 'ii'in te costs in tecells o9 te 9irststae allocation aboe b te total actiit9rom te top o9 te column.

Direct LaborSupport

OrderProcessing

CustomerSupport

otal actiit......... !0,000 DBCs 500 or'ers !00 customers

aes an'salaries...............

$!0.50 $245.00 $ 815.00

7ter oerea'costs...................

5.00 %0.00 400.00

otal cost.............. $!5.50 $305.00 $!,215.00

;+ample: $!05,000 !0,000 DBCs < $!0.50 per DBCDirect labor support #aes an' salaries 9rom te 9irststaeallocation aboe.

3. e oerea' cost 9or te or'er is compute' as 9ollo#s:

DirectLabor

Support

OrderProcessin

g

Customer

Support Total

ctiit.........................50

DBCs!

or'er

!

customer

aes an' salaries...... $525 $245 $ 815 $!,%457ter oerea' costs.. . 250 %0 400 1!0

otal cost..................... $115 $305 $!,215 $2,355

;+ample: 50 DBCs $!0.50 per DBC < $525

ctiit rate 9or 'irect labor support #aes an' salaries 9rompart (2) aboe.

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Exercise 7A-4 (continue')

4. e report can be constructe' usin te column totals at tebottom o9 te oerea' cost analsis in part (3) aboe.

Customer !argin"ABC Analsis

Sales (!00 units $25 per unit)...........$2,50

0osts:Direct materials ($2%4 per unit !00

units).................................................. $2%,400Direct labor ($25 per DBC 0.5 DBC

per unit !00 units).......................... !,250Direct labor support oerea' (see

part 3 aboe)...................................... 1157r'er processin oerea' (see part 3

aboe)................................................ 305ustomer support oerea' (see part 3

aboe)................................................ !,21530,00

5

ustomer marin....................................$( 50

5)

5. e action analsis report can be constructe' usin te ro#totals 9rom te actiit rate table, orani>e' accor'in to te

ease o9 a'=ustment co'es:Sales ($25 per unit !00 units)............. $2,500Green costs:

Direct materials ($2%4 per unit !00units).................................................... $2%,400 2%,400

Green marin............................................ 3,!00"ello# costs:

Direct labor ($25 per DBC 0.5 DBC perunit !00 units).................................. !,250

aes an' salaries (see part 3 aboe)... !,%45 2,85"ello# marin........................................... 205e' costs:

7ter oerea' costs (see part 3 aboe) 1!0 1!0e' marin............................................... $( 505 )

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%. ile te compan appears to ae incurre' a loss on itsbusiness #it &n'us elecom, caution must be e+ercise'. ereen marin on te business #as $3,!00. Silicon 7ptics reall

incurre' a loss on tis business onl i9 at least $3,!00 o9 teello# an' re' costs #oul' ae been aoi'e' i9 te &n'us

elecom or'er a' been re=ecte'. -or e+ample, #e 'onEt *no##at speci9ic costs are inclu'e' in te F7ter oerea'cateor. &9 tese costs are committe' 9i+e' costs tat cannotbe aoi'e' in te sort run, ten te compan #oul' been#orse o99 i9 te &n'us elecom or'er a' not been accepte'.

Suppose tat &n'us elecom #ill be submittin a similaror'er eer ear. s a eneral polic, te compan mit

consi'er turnin 'o#n tis business in te 9uture. osts tatcannot be aoi'e' in te sort run, ma be aoi'e' in te lonrun trou te bu'etin process or in some oter manner.Co#eer, i9 te &n'us elecom business is turne' 'o#n,manaement must ma*e sure tat at least $3,!00 o9 te ello#an' re' costs are reall eliminate' or te resourcesrepresente' b tose costs are reall re'eploe' to teconstraint. &9 tese costs remain uncane', ten te compan#oul' be better o99 acceptin tan re=ectin business 9rom te&n'us elecom in te 9uture.

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Problem 7A-5(30 minutes)

!. e 'etaile' cost analsis o9 local commercials appears belo#:

Activit Rates

Animatio

nConcept

Animation

Production

Contract

Administrationecnical sta99 salaries........... $3,500 $5,000 $!,800nimation e/uipment

'epreciation......................... %00 !,500 0'ministratie #aes an'

salaries................................. !,400 200 4,%00Supplies costs......................... 300 %00 !00-acilit costs........................... 200 400 !00

otal....................................... $%,000 $1,100 $%,%00

AnimationConcept

AnimationProduction

Contract

Administration Total

ctiit leel............................. 20 proposals !2 minutes 8 contracts

ecnical sta99 salaries.............. $ 10,000 $%0,000 $!4,400 $!44,400nimation e/uipment

'epreciation...........................!2,000 !8,000 0 30,000

'ministratie #aes an'salaries...................................

28,000 2,400 3%,800 %1,200

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Supplies costs........................... %,000 1,200 800 !4,000-acilit costs............................. 4,000 4,800 800 ,%00

otal cost.................................. $!20,000 $2,400 $52,800 $2%5,200

;+ample: $3,500 per proposal 20 proposals < $10,000

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Problem 7A-5(continue')

2. e action analsis report is constructe' b usin te ro#totals 9rom te cost report in part (!) aboe:

Sales........................................... $240,000Green costs:Supplies costs........................... $ !4,000 !4,000

Green marin.............................. 22%,000"ello# costs:

'ministratie #aes an'salaries...................................

%1,200 %1,200

"ello# marin.............................. !58,800e' costs:ecnical sta99 salaries............. !44,400

nimation e/uipment'epreciation...........................

30,000

-acilit costs............................. ,%00 !84,000

e' marin..................................$( 25,20

0)

3. t 9irst lance, it appears tat te compan is losinmone on local commercials. Co#eer, te action analsisreport in'icates tat i9 tis mar*et sement #ere 'roppe',most o9 te costs #oul' probabl continue to be incurre'.

e nature o9 te tecnical sta99 salaries is clearl criticalbecause it ma*es up te bul* o9 te costs. anaementas sueste' tat te companEs most aluable asset iste tecnical sta99 an' tat te #oul' be te last to o incase o9 9inancial 'i99iculties. Heerteless, tere are atleast t#o situations in #ic tese costs #oul' bereleant. -irst, 'roppin te local commercial mar*etsement ma re'uce 9uture irin o9 ne# tecnical sta99.

is #oul' ae te e99ect o9 re'ucin 9uture spen'in

an' tere9ore #oul' re'uce te companEs costs. Secon',i9 tecnical sta99 time is a constraint, 'roppin te localcommercial mar*et sement #oul' allo# manaers tosi9t tecnical sta99 time to oter, presumabl morepro9itable, #or*. Co#eer, i9 tis is te case, tere arebetter #as to 'etermine #ic pro=ects soul' ettecnical sta99 attention. is sub=ect #ill be coere' in

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apter !3 in te section on utili>ation o9 scarceresources.

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Problem 7A-5(continue')

-inall, te cost o9 te animation concept at te proposalstae is a ma=or 'ra on te pro9itabilit o9 te localcommercial mar*et. e actiitbase' costin sstem, as

currentl 'esine', assumes tat all pro=ect proposalsre/uire te same e99ort. is ma not be te case.?roposals 9or local commercials ma be 9ar less elaboratetan proposals 9or ma=or special e99ects animationse/uences 9or motion pictures. &9 manaement hasbeenputtin about te same amount o9 e99ort into eerproposal, te aboe actiitbase' costin analsissuests tat tis ma be a mista*e. anaement ma#ant to consi'er cuttin bac* on te e99ort oin into

animation concepts 9or local commercials at te pro=ectproposal stae. 79 course, tis ma lea' to an een lo#ersuccess rate on bi's 9or local commercials.

7A-1'

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