MANAGERIAL ANALYSIS

of Sycamore, Illinois has supported a research

and development (R&D) department that has for many years been the sole contributor to

the company’s new farm machinery products. The R&D activity is an overhead cost center

that provides services only to in-house manufacturing departments (tour different product

lines), all of which produce agr:iculturaVfarm,/ranch related machinery products.

The department has never sold its services outside, but because of its long history of

success, larger manufacturers of agicultural products have approached Ideal to hire its

R&D department for special projects. Because the costs of operating the R&D department

have been spiraling uncontrollably, Ideal’s management is considering entertaining tlese

outside approaches to absorb the increasing costs. But, (1) management doesnt have any

cost basis for charging R&D services to outsiders, and (2) it needs to gain control of its R&D

costs. Management decides to implement an activity-based costing system in order to determine

the charges for both outsiders and the in-house users of the deparlrnent’s services.

R&D activities fall into four pools with the following annual costs.

Market analysis

Product design

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Product development

Prototype testing

$1,0s0,000

2,280,000

3,600,000

1.400.000

Activity analysis determines that the appropriate cost drivers and their usage for the

four activities are:

Activities Cost Ilrivers

Total

Estimated Drivers

Market analysis

Product design

Product development

Prototype testing

Instru.ctions

(a) Compute the activity-based overhead rate for each activity cost pool.

(b) How much cost would be charged to an in-house manufacturing department that

consumed 1,800 hours of market analysis time, was provided 280 designs relating to

10 products, and requested 92 engineering tests?

(c) How much cost would serve as the basis for pricing an R&D bid with an outside company

on a confract that would consume 800 hours of analysis time, require 178

designs relating to 3 products, and result in 70 engineering tests?

(d) What is the benefit to Ideal Manufacturing of applying activity-based costing to its

R&D activit-v for both in-house and outside charging purposes?

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Managerial Analysis

Prepare written responses to the following case study from Ch. 2 of Managerial Accounting:

· Managerial Analysis: BYP2-2

o Click the Assignment Files tab to submit your assignment.

· Managerial Analysis

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BYP2-2

In the course of routine checking of all journal entries prior to preparing year-end reports, Diane Riser discovered several strange entries. She recalled that the president’s son Ron had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Ron made were:

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http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

1.

Work in Process Inventory

25,000

Cash – Raw Materials Inventory

25,000

If not corrected, the balance sheet is affected. Cash is understated and Raw Materials Inventory is overstated.

2.

Manufacturing Overhead

12,000

Cash

12,000

(This is for bonuses paid to salespeople. I know they’re part of overhead, and I can’t find an account called “Non-factory Overhead” or “Other Overhead” so I’m putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)

3.

Wages Expense

120,000

Cash

120,000

(This is for the factory workers’ wages. I have a note that payroll taxes are $15,000. I still think that’s part of wages expense, and that we’ll have to pay it all in cash sooner or later, so I credited Cash for the wages and the taxes.)

4.

Work in Process Inventory

3,000

Raw Materials Inventory

3,000

(This is for the glue used in the factory. I know we used this to make the products, even though we didn’t use very much on any one of the products. I got it out of inventory, so I credited an inventory account.)

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

Instructions

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

(a)

How should Ron have recorded each of the four events?

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

(b)

If the entry was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?

Managerial Analysis

Prepare written responses to the following case study from Ch. 2 of Managerial Accounting:

· Managerial Analysis: BYP2-2

o Click the Assignment Files tab to submit your assignment.

· Managerial Analysis

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

BYP2-2

In the course of routine checking of all journal entries prior to preparing year-end reports, Diane Riser discovered several strange entries. She recalled that the president’s son Ron had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Ron made were:

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

1.

Work in Process Inventory

25,000

Cash – Raw Materials Inventory

25,000

If not corrected, the balance sheet is affected. Cash is understated and Raw Materials Inventory is overstated.

2.

Manufacturing Overhead

12,000

Cash

12,000

(This is for bonuses paid to salespeople. I know they’re part of overhead, and I can’t find an account called “Non-factory Overhead” or “Other Overhead” so I’m putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)

3.

Wages Expense

120,000

Cash

120,000

(This is for the factory workers’ wages. I have a note that payroll taxes are $15,000. I still think that’s part of wages expense, and that we’ll have to pay it all in cash sooner or later, so I credited Cash for the wages and the taxes.)

4.

Work in Process Inventory

3,000

Raw Materials Inventory

3,000

(This is for the glue used in the factory. I know we used this to make the products, even though we didn’t use very much on any one of the products. I got it out of inventory, so I credited an inventory account.)

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

Instructions

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

(a)

How should Ron have recorded each of the four events?

http://edugen.wiley.com/edugen/courses/crs4477/common/art/pixel.gif

(b)

If the entry was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated?