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MBA 520 MBA520 MBA/520 4.3 Cost Allocation

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MBA 520 MBA520 MBA/520 4.3 Cost Allocation

MBA520 Performance Measurement and Accounting Systems____________________________

Week 4 –4.3Cost Allocation

(The following are excerpts from: Managerial Accounting, by Jiambalvo, John Wiley & Sons, Inc., 2004, 2ndedition)

Opening Scenario

Gardenrite Manufacturing Company produces garden tools and lawn maintenance products that are sold through a national chain of hardware stores. The company manufactures more than 60 products. Approximately 80 percent of its revenue comes from selling small home garden tools such as rakes, pruners, and spades.

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MBA 520 MBA520 MBA/520

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Champlain College, MBA 520 MBA520 MBA/520 4.3 Cost Allocation

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MBA 520 MBA520 MBA/520 4.3 Cost Allocation

MBA520 Performance Measurement and Accounting Systems____________________________

Week 4 –4.3Cost Allocation

(The following are excerpts from: Managerial Accounting, by Jiambalvo, John Wiley & Sons, Inc., 2004, 2ndedition)

Opening Scenario

The company also manufactures high-quality lawn mowers, edgers, and blowers that are popular with professional lawn service companies, but sales of these products have not been a major source of revenue. In recent months, Ben Jakes, the CEO at Gardenrite, has become concerned about the apparent profitability of several products.

In particular, some high-volume products like the Model 250 spade are barely breaking even, whereas some low-volume products like the new Model 900 mower are selling for much more than the cost of production. The high profit earned by the Model 900 mower is particularly surprising.

The company only recently began manufacturing mowers, and Ben expected production inefficiencies, associated with any new product line, to keep profit margins low. Ben knows that manufacturing overhead is allocated to products based on labor cost.

The approach is simple, but he suspects it may be causing allocations of cost that are too high for spades and too low for mowers.

Firms that produce more than one product or provide more than one type of service invariably have indirect costs because resources are shared by the products or services (e.g., two different products may be manufactured using the same piece of equipment).

Various departments may also have common or shared resources (e.g., the marketing and human resources departments may share a high-speed copy machine).

Because indirect costs associated with shared resources cannot be directly traced to products or services, some means of assigning them must be developed. The process of assigning indirect costs is referred to as cost allocation.

Unfortunately, cost allocation frequently results in problems like the one faced by Ben Jakes. To prepare yourself to deal with them, you need a good understanding of why and how costs are allocated. Providing you with that understanding is the purpose of this chapter.

One of the key points of the chapter is that costs are allocated for a variety of purposes; allocations that are adequate for one purpose may not be adequate for another purpose.Many managers have expressed concern that the way overhead is typically allocated may seriously distort product cost for manufacturing firms.

The problem arises because most product costing systems allocate overhead using measures related to production volume. This is the case at Gardenrite, where manufacturing overhead is allocated based on labor cost. However, many overhead costs are not proportional to volume. Activity

MBA 520 MBA520 MBA/520 4.3 Cost Allocation

MBA 520 Managerial Accounting School: Champlain College *Professor:Micelli, N/A Documents (26) Q&A (142) Textbook Exercises Managerial Accounting Documents All (26) Assessments Assignments Essays Homework Help

(3) Lab Reports Lecture Slides Lesson Plans Notes (2) Syllabi Test Prep (3) Showing 1 to 26 of 26 Sort by: Most Popular 2 pagesChapter 2 HW 2.2Chapter 2 HW 2.2 Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now Chapter 2 HW 2.2 2 pagesChapter 2 HW 2.1Chapter 2 HW 2.1 Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now Chapter 2 HW 2.1 7 pages1.1 Introduction to Performance Measurement1.1 Introduction to Performance Measurement Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 1.1 Introduction to Performance Measurement 33 pagesQUIZ-BAA-785.pdfQUIZ-BAA-785.pdf Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now QUIZ-BAA-785.pdf 17 pagesQUIZ-BAC-789.pdfQUIZ-BAC-789.pdf Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now QUIZ-BAC-789.pdf 5 pagesMBA 521 Week 8 Ass 1.docxMBA 521 Week 8 Ass 1.docx Champlain College

MBA 520 – Fall 2019 Register Now MBA 521 Week 8 Ass 1.docx 6 pagesMBA 521 Week 5 Ass 1.docxMBA 521 Week 5 Ass 1.docx Champlain College

MBA 520 – Fall 2019 Register Now MBA 521 Week 5 Ass 1.docx 6 pagesMBA 521 Week 3 Ass 1.docxMBA 521 Week 3 Ass 1.docx Champlain College

MBA 520 MBA520 MBA/520 4.3 Cost Allocation

MBA 520 – Fall 2019 Register Now MBA 521 Week 3 Ass 1.docx 6 pagesMBA 521 Week 4 Ass 1.docxMBA 521 Week 4 Ass 1.docx Champlain College

MBA 520 – Fall 2019 Register Now MBA 521 Week 4 Ass 1.docx 5 pagesMSEL 520 Week 1 Ass 2.docxMSEL 520 Week 1 Ass 2.docx Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now MSEL 520 Week 1 Ass 2.docx 7 pagesMSEL 520 Week 8 Ass 1.docxMSEL 520 Week 8 Ass 1.docx Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now MSEL 520 Week 8 Ass 1.docx 5 pagesMSEL 520 Week 3 Ass 2.docxMSEL 520 Week 3 Ass 2.docx Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now MSEL 520 Week 3 Ass 2.docx 11 pagesManagerial Accounting- NotesManagerial Accounting- Notes Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now Managerial Accounting- Notes 1 pagestest 1test 1 Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now test 1 10 pages5.8 ABC5.8 ABC Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 5.8 ABC 10 pages4.2 Benchmarking4.2 Benchmarking Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 4.2 Benchmarking 8 pages4.3 Cost Allocation4.3 Cost Allocation Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 4.3 Cost Allocation 10 pages6.1 Relevant Costing6.1 Relevant Costing Champlain College Managerial Accounting

MBA 520 MBA520 MBA/520 4.3 Cost Allocation

MBA 520 – Spring 2016 Register Now 6.1 Relevant Costing 5 pages5.1 Performance Management5.1 Performance Management Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 5.1 Performance Management 4 pages5.4 Strategy Maps and Scorecards as Solutions5.4 Strategy Maps and Scorecards as Solutions Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 5.4 Strategy Maps and Scorecards as Solutions 5 pages5.3 Problems and Solutions5.3 Problems and Solutions Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 5.3 Problems and Solutions 4 pages5.9 ABM5.9 ABM Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 5.9 ABM 2 pages5.6 Scorecards and Strategy Maps5.6 Scorecards and Strategy Maps Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 5.6 Scorecards and Strategy Maps 1 pages5.2 Strategy Maps5.2 Strategy Maps Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 5.2 Strategy Maps 1 pages4.1 Performance Measurement Applications (1)4.1 Performance Measurement Applications (1) Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now 4.1 Performance Measurement Applications (1) 48 pagesedm73215_ch02 (1)edm73215_ch02 (1) Champlain College Managerial Accounting

MBA 520 – Spring 2016 Register Now edm73215_ch02 (1) Managerial Accounting Tests Questions & Answers Showing 1 to 8 of 142 View all Which of the following would be classified as a financing activity on a statement of cash flows? A)

MBA 520 MBA520 MBA/520 4.3 Cost Allocation

Declaration and distribution of a stock dividend B) Payment 1 2 3 4 5 On August 5, 2018, Famous Furniture shipped 40 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of 1 2 3 4 5

Which of the following would be included in the Lease Receivable account? Guaranteed residual value. Unguaranteed residual value. Executory costs Penalty for 1 2 3 4 5 On January 1, 2018, Newlin Co. has the following balances: Projected benefit obligation $3,500,000 Fair value of plan assets 3,000,000 The settlement rate is 1 2 3 4 5

The following information for Cooper Enterprises is given below: December 31, 2018 Assets 1 2 3 4 5 Presented below is information related to Jensen Inc. pension plan for 2018. Service cost $1,360,000 Actual return on plan ass 1 2 3 4 5

Wilcox Corporation reported the following results for its first three years of operation: 2017 income (before income taxes) $ 300,000 2018 loss (before income 1 2 3 4 5 Mitchell Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 $ 1,800,000 Tax e 1 2 3 4 5

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