Running head: BROADENING YOUR PERSPECTIVES 17-2

Broadening Your Perspectives 17-2

Tresa Jellison
ACC/561
February 23, 2015
Professor James Carlin

BROADENING YOUR PERSPECTIVES 17-2

Broadening Your Perspectives 17-2

The Ideal Manufacturing Company located in Sycamore, Illinois. To gain an idea to
explain how activity based costing Can help the company keep its costs at different and correct
levels can be defined as an, An activity based costing (ABC) system recognizes the
relationship between costs, activities and products, and through this relationship assigns indirect
costs to products less arbitrarily than traditional methods.. (Investopedia, 2014)
Compute the activity based overhead rate for each activity
cost pool
To calculate the activity of overhead rate for each pool, we have to
compute the activity overhead rate for each cost action. To determine the
market analysis amount and hours you divide $1,050,000 by $15,000 to
equal $70.00. The product design $2,350,000 is divided by $2,500 to equal
$950. Product development 3,600,000 divided by the number of products 90
equals to 40. Finally, the prototype 1,400,000 id divided by the number of
tests performed 500 to equal 2,800.
How much cost charged to an in house manufacturing
department that consumes 1800 hours of market analysis time was
provided 280 designs relating to 10 products and requested 92
engineering tests?
When calculating the market analysis you have to multiply the
calculated rate of 70 by 1,800 hours to equal total cost $126,000. Product
design is solved by multiplying the previous calculations of 940 by 280 to

BROADENING YOUR PERSPECTIVES 17-2

equal $263,200 in cost. Product development is summed by the 10 products

multiplied by the recalculated 40,000 to equal $400,000. The final
calculation of the prototype testing 2,800 multiplied by 92 equals to
$257,600 total cost. Which in sum of everything is $1,046,800 total.
How much cost would serve as the basis for pricing an R&D bid
with and outside company on a contract that would consume 1,800
hours of analysis time?
To determine how much cost for pricing bases for R&D. For the market
analysis, you multiply 800 hours by $70 overhead rate to equal $56,000. To
determine Product design is 178 designs multiplied by $912 equals to
$162,336. Product development is three products multiplied by $40,000 to
equal to $120, 00. Prototype testing is 70 test multiplied by $2000 to equal
$140,000 for a grand total of overhead assigned of $478,336.
What is the benefit to ideal manufacturing of applying activity
based cost to its R&D activity for both in house and outside
purposes for charging
For the activity based cost permits, R&D had to recognize its expenses
by the events that effect the cost. By doing so, this allows a study of the
cost incurrences and gain better control. Charging in house business
sections for reasonable share The R&D Company may exert their
departmental cost to possess control over such cost. Activity based costing

BROADENING YOUR PERSPECTIVES 17-2

allows accurate costs for attempting to accumulate realistic costs for bidding
and charging outside of its users in the R&D division of amenities.

Reference:
www.investopeida.com.(2014)