Strategic Accounting Assignment Example | Topics and Well Written Essays - 2500 words

Strategic Accounting - Assignment ExampleWidgetsGadgetsHeliosTotal MH = MH per unit* recite of units100,000200,000120,000Total DLH = DLH per unit* number of units350,000120,00060,000Number of set-ups120200200Customer orders8,0008,00016,000Supplier orders3,0004,0004,200Assigning overhead to the product linesActivity centerWidgetsGadgetsHeliosTotalMachining Services100,000 MH x 0.85 per MH85,000200,000 MH x 0.85 per MH170,000120,000 MH x 0.85 per MH102,000357,000Assembly Services350,000 DLH x 0.60 per DLH210,000120,000 DLH x 0.60 per DLH72,00060,000 DLH x 0.60 per DLH36,000318,000Set-Up Costs120 set-ups x 50 per set-up6,000200 set-ups x 50 per set-up10,000200 set-ups x 50 per set-up10,00026,000Order Processing8,000 orders x 4.875 per order39,0008,000 orders x 4.875 per order39,00016,000 orders x 4.875 per order78,000156,000Purchasing3,000 orders x 7.50 per order22,5004,000 orders x 7.50 per order30,0004,200 orders x 7.50 per order31,50084,000Total Costs Assigned362,500321,000257,50094 1,000Profitability by product using Activity-based cost system is the followingWidgetsGadgetsHeliosTotalUnits50,00040,00030,000120,000Selling price 45 /unit95 /unit73 /unitSales Revenues2,250,0003,800,0002,190,0008,240,000Direct labour and material costs1,600,0003,360,0001,950,0006,910,000Overhead362,500321,000257,500941,000GROSS MARGIN287,500119,000-17,500389,000GM, %12.8%3.1%-0.8%Under Activity-based costing, Widgets and Gadgets attest positive GM rates of 12.8% and 3.1% correspondingly, while the new product Helios has a negative GM rate of -0.8% and decreases the divisions overall profitability. Noteworthy, Widgets... Application of the traditional methods of overhead apportioning to products based on any single activity measure can produce distorted product costs. In brief, the traditional volume-based approach led to an overreckoning of the unit costs for Widgets and Gadgets products for 2.30% and .49% correspondingly and underestimation - for Helios by 2.99%. Although the difference percentage is comparatively not high - sometimes the distortion can reach the aim of 300% (Emblemsvag, 2003, p.124) - it leads to false conclusions about the performance on the product level.It is obvious that the Helios product should be reassessed and the decision regarding its future should be taken by the vigilance as the product currently makes a negative contribution to the overall result.Yoram Eden and Boaz Ronen (2002) note that In general, it may be claimed that the greater the complexity of manufacturing a given product the greater the degree to which traditional costing underestimates the cost to be attributed to that product (p.55). Bingley Products divisions case proves this general rule. Helios requires high number of set-ups, as hale as quantity of customer and supplier order processing activity.Traditional costing widely used because of its simplified nature and m