Posted: July 5th, 2021

Lala Loopsy – Good Morning

Writea paper that is at
least 750 words(papers less than 750 words, will receive a reduction in
points) in which you respond to the Broadening Your Perspective 17-2 activity
titled “Managerial Perspective” in Ch. 17 ofAccounting.MANAGERIAL
ANALYSIS
BYP17-2Ideal Manufacturing Company 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 (four different product lines), all of which produce
agricultural/farm/ranch related
machinery products.
The department has never sold its
services outside, but because of its long history of success,
larger manufacturers of agricultural
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 these outside approaches to absorb
the increasing costs. But, (1)
management doesn’t 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 inhouse
users of the department’s
services.R&D activities fall into four
pools with the following annual costs.Market analysis
$1,050,000
Product design
2,350,000
Product development
3,600,000
Prototype testing
1,400,000Activity analysis determines that
the appropriate cost drivers and their usage for the four activities
are:
Total
Activities
Cost Drivers
Estimated Drivers
Market analysis
Hours of analysis
15,000 hours
Product design
Number of
designs 2,500 designs
Product development Number of products
90 products
Prototype testing
Number of
tests 500 testsInstructions
(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 contract 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 activity
for both in-house and outside
charging purposes?
broadening
your perspective

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