Huge Company Case Study Essay
Today, more and more organizations prefer Activity-Based Costing System (ABC) to the functional-based costing system. ABC takes into account minute details regarding the activities and the factors that add up to the final cost. ABC is based on an activity hierarchy wherein the different activities influencing the cost build up are grouped into different categories. Such a costing method improves cost measurement by organizing information around activities (Thompson, 2003). The group will complete requirements (a) through (e) found at the end of the case. They will then, find three sources on the Internet, that compare and contrast activity-based costing and functional-based costing systems. And, to …show more content…
Total equipment costs $90,000,000
Total working per hour per year = 6,000/hrs
Total # work centers = 19
Average cost per hour per work center = 90,000,000/(19 X 6,000) = $789.47 (per center/hour). A machine is a center.
Job 1: 789.47 X 7.5 = 5,921.05
Job 1: 789.47 X 10 = 7,894.70
Job 1: 789.47 X 8.75 = 6,907.86
Job 1: 789.47 X 12.5= 9,868.38
Job 1: 789.47 X 6 = 4,736.82
d.) Explain the differences in decision making at TBU. The management of Huge Company’s tooling business unit is concerned that his unit costs do not accurately reflect actual unit work performed because other business units send them their work. TBU management computes a combined labor and overhead cost per labor hour and charges each job based on the number of labor hours used. This labor- based charge is then added to the materials cost to calculate the total job costs. This method does not provide an accurate cost per unit and can lead to over-costing or under-costing per unit.
e.) Identify TBU’s internal customers that might be influenced by the use of the alternative cost system. Activity based costing systems can be utilized by the entire company, individual departments or units within the company. There-fore all of the company’s internal customers can be influenced by the use of the ABC systems. Managers over the company’s major products as well as other business units