1. Define the following terms:

2. Explain clearly how Superior's cost accounting system works.
3. Refer to case Exhibit 2. I have reproduced the numbers for you at superior data sheet.xls. Based on the data given, do you agree with the decision to keep product 103? Why? Warning: Do NOT total the per unit variable costs in Exhibit 2 to calculate the per unit contribution margins. There are rounding errors which will be compounded if you do this and the resulting numbers will not reconcile with the case data.
4. Calculate Superior's breakeven point in units for the company as a whole and for products 101, 102 and 103, assuming that all products are sold in the same mix as in 2004.
5. Should Superior lower the price on Product #101 as of January 1, 2006? Why or why not?
6. Why did Superior's profitability improve during the January 1 - June 30th, 2005 period

1. Case Exhibit 1 refers to a 200% overhead rate for the Fabrication Department. Demonstrate your understanding of the overhead allocation process by recalculating the 200% rate. In other words, "prove" that the 200% rate is correct. Also, where does the M$6.00 overhead cost of the PS model come from?
2. It is impossible to understand what the cost accounting system looks like [or should look like] if you do not understand the production process. What does the production process "look like?" Sketch out a diagram.
3. Recreate the 291% overhead rate applied to the radios coming through Section 1 of the Fabrication Department.
4. Assume for the moment that you had not seen case Exhibit 3 with the recalculated overhead rates. Given the facts of the case and reasonable use of your imagination, would there be an a priori justification for redesigning the cost system? Focus particularly on the Fabrication Department.

1. As Roswell, evaluate the strengths and weaknesses of the current costing system at Westmount.
2. Using the 2005 cost information [see case Exhibit 4], design a new costing system for Westmount, taking into account the three suite options and the three levels of required patient care. What is the new cost per patient under each of the options?
3. How useful is the new information to Roswell for pricing purposes? What prices should Roswell recommend be charged for the various suite options and for the various levels of required patient care?

1. Why do you think Quality selected pounds of butterfat as an allocation basis? Would you suggest a different allocation basis?
2. Using cost estimates from the existing system present in Table 2, would you accept the McDonald's order? Why?
3. Perform a relevant cost analysis [i.e., determine the incremental cost per gallon] for the McDonald's order. What is the minimum price Quality can charge McDonald's and still increase net income by $0.05 per gallon? [Some assumptions may be necessary.
4. What is Quality's basic mix strategy? Is the McDonald's order consistent with this strategy? Explain why or why not.
5. What are the consequences of the current allocation procedure? What suggestions [other than implementing ABC] would you make to Mr. Smith about improving the product costing system used to determine target prices?
6. Without considering the impact on product costs of the McDonald's order, recalculate the cost of 10% and regular milk shake mix based on your answers to questions 1 and 5, above.
7. Select an ABC driver for each cost pool that applies to the mix business. Recalculate the ABC cost per gallon for the McDonald's order. Would your decision to accept or reject the order change? Why or why not?

1. Why was Dakota's existing pricing system inadequate for its current operating environment?
2. Develop an activity-based cost system for Dakota Office Products (DOP) based on Year 2000 data. Calculate the activity cost-driver rate for each DOP activity in 2000.
3. Using your answer to Question 2, calculate the profitability of Customer A and Customer B.
4. What explains any difference in profitability between the two customers?
5. What are the limitations, if any, to the estimates of the profitability of the two customers?
6. Is there any additional information you would like to have to explain the relative profitability of the two customers?
7. Assume that Dakota applies the analysis done in Question 3 to its entire customer base. How could such information help the Dakota managers increase company profits?
8. Suppose that a major customer switched from placing all its orders manually to placing all its orders over the internet site. How should this affect the activity cost driver rates calculated in Question 2? How would the switch affect Dakota's profitability?

1. Conceptually, what are the factors that explain the difference between planned and actual results?
2. Prepare a flexible budget for EntertainmentNow.com for the past year, flexing solely on total actual units sold.
3. For each factor you identified in Question 1, quantify the impact on the net loss per item sold.
4. Assume that technology and content, general and administrative, and depreciation and amortization costs are fixed costs that total $73.7 million annually. Based on EntertainmentNow.com's current sales revenue, cost of goods sold, fulfillment expenses, and marketing, what are EntertainmentNow.com's breakeven sales in units? Is this level of sales realistic? Why or why not?

1. Work the Youngstown Products numerical example: Youngstown Products, a supplier to the automotive industry, had seen its operating margins shrink below 20% as its OEM customers put continued pressure on pricing. Youngstown produced four products in its plant and decided to eliminate products that no longer contributed positive margins. Details on the four products are provided below:

Youngstown has a traditional cost system. It calculates a plant-wide overhead rate by dividing total overhead costs by total direct labor hours. Assume, for the calculations below, that plant overhead is a committed (fixed) cost during the year, but that direct labor is as variable cost.

1. Calculate the plant-wide overhead rate. Use this rate to assign overhead costs to products and calculate the profitability of the four products. The assignment spreadsheet provides a starting point for your calculations, with some data and formulas already supplied.
2. If any product is unprofitable with this cost assignment, drop this product from the mix. Recalculate the overhead rate based on the new total direct labor hours remaining in the plant. Apply the new overhead rate to the remaining products.
3. Drop any product that is unprofitable with the revised cost assignment. Repeat the process, eliminating any unprofitable products at each stage.
4. What is happening at Youngstown and why? How could this situation be avoided?

2. What has caused the fluctuating margins for Anagene's cartridges?
3. Should Kelly even be concerned with the assignment of overhead costs to cartridges and gross margins that include allocated overhead? Why not use contribution margin (selling price less variable costs, primarily materials) for management decision-making and reporting?
4. What approach do you recommend that Daniel Yeltin adopt? For your recommended approach, what will be the cartridge product costs and margins?
5. Suppose sales in 2001 equal 26,000 units, as budgeted in January, and that actual manufacturing expenses turn out to equal budgeted expenses. Prepare an income statement for the year (just include the manufacturing expenses) that will help senior management and the board understand the economics of cartridge production in 2001.

Graded assignment::

1. Compute the profits for the five sample products under ABC and TOC.
2. Identify the differences in assumptions between standard costing, ABC, and TOC.
3. Based on profit calculations and other relevant considerations, make recommendations for Lehigh's product mix in 1993.

1. Described the environment at Miniscribe before Wiles entered the scene.
2. Consider Wiles's 13 disciplines. Have you ever worked for a company that embraced these principles?
3. Didn't Wiles's approach offer precisely the kind of discipline and focus needed to turn the company around?
4. What went wrong?
5. Who were the key stakeholders in the case? How did they perceive their responsibilities?
6. What were Marge Norman's responsibilities? Should she feel guilty about what she did [or didn't do]?
7. If you had to identify ONE central factor in the case, what answer would you give to the question: "Fraud occurred at Miniscribe mainly because...?" Explain your reasoning for your conclusion.

1. Outline the business cycle for Norwalk. Where do things get started? What steps are required to bring products to market?
2. What additional attributes can you identify for each of the perspectives in the scorecard? What measurement and/or data gathering issues are involved?
3. Evaluate the Norwalk Division's efforts. What do you think of the actions of Bill Baron? Dan Daniels? John Greenfield? Wil Wagner? Mike Hassler?
4. Given your responses to Question 3, assess the probability that Norwalk's scorecard will be successfully implemented using the following scale:
   1. As certain as finding sand in the Sahara Desert
   2. As likely as a rainy day in Seattle in March
   3. As likely as rainy day in Seattle in August
   4. Forget it.

1. What happened in 1999? Was it a good year for the company?
2. Give some thought to Maverick's value-added proposition. In other words, what competitive advantage is the company trying to achieve? Do the Balanced Scorecard system and its related bonus plan help Maverick in what it is trying to achieve, or do they just make things worse?
3. Be prepared to explain how the flow-through flexible budget works.
4. What change, if any, should be made in the balanced scorecard?

Assignment:

1. Which bid should Mr. Kenton accept?
2. Which bid is in the best interest of birch Paper Company?
3. Should the commercial vice president intervene? If so, how?

1. What are the reasons for the disputes and frustrations at SF Bay? Who is being unreasonable?
2. How should the monthly rental rate for desktop computers be set? In answering this question, you should consider:
   1. The fluctuating external price of computers,
   2. How other (non-hardware) services and software might be priced,
   3. The costs and benefits of having common network access and software use, and
   4. How the groups recoup this internal expense.
3. What do you think of the change in the "incidentals" charging system? What are the costs and benefits of this change?
   1. Would a system like the one described in the Bell Atlantic article be more or less effective if internal customers were not allowed to buy outside?
   2. How did Bell Atlantic's new system for interdepartmental services change the organizational rules of the game?
   3. Do you think that SF Bay should adopt a system like the one at Bell Atlantic? Why or why not?

4. What changes—in people, approaches or policies—would you recommend at SF Bay to solve the problems with computer services?
5. As a result of your recommended changes, what would you expect to happen to:
   1. the demand for interdepartmental services?
   2. the quality of services provided internally?
   3. turnaround time?

1. Describe the current method of allocating costs associated with the Training and Educational Services Group (TESG) to the Consulting and Customer Care Groups.
2. What are the concerns/complaints about the current method of allocating costs associated with the Training and Educational Services Group to the Consulting and Customer Care Groups?
3. Prepare an allocation of TESG costs using the following alternative allocation methods:
   1. Develop a budgeted allocation rate using budgeted costs and budgeted usage. Use this budgeted rate to allocate costs to user groups based on actual usage.
   2. Separate TESG costs into fixed and variable costs. Consider a cost to be variable if it varies with the number of training sessions (i.e., trainee-weeks). Otherwise, consider it to be fixed. Allocate fixed and variable costs separately, as follows:
      1. Develop an allocation rate for fixed costs using budgeted costs and actual usage. Use this rate to charge fixed costs to user groups based on actual usage.
      2. Develop a budgeted allocation rate for variable costs using budgeted costs and budgeted usage. Use this budgeted rate to charge variable costs to user groups based on actual usage.
   3. Separate TESG costs into fixed and variable costs, as in 3.b. above. Allocate fixed and variable costs separately, as follows:
      1. Develop an allocation rate for fixed costs using budgeted costs and budgeted usage. Use this rate to charge fixed costs to user groups based on budgeted usage.
      2. As in 3.b. above, develop a budgeted allocation rate for variable costs using budgeted costs and budgeted usage. Use this budgeted rate to charge variable costs to user groups based on actual usage.

4. Evaluate whether each allocation method addresses concerns about the current allocation method that you identified in question 1.
5. What behaviors are likely to result from each allocation method?
6. Which allocation method do you recommend? Why?