"ACC 561 week 4 WileyPLUS Assignment(Ideal Manufacturing Company)"…Complete Assignment! Thanks

Accessthe following Week 4 reading, linked to this assignment:

• Broadening Your Perspective 17-2

Writea paper of no more than 750 words in which you respond to the Broadening Your Perspective 17-2 activity titled "Managerial Perspective" in Ch. 17 ofAccounting.

Click the Assignment Files tab to submit your assignment.

BYP17-2  

MANAGERIAL ANALYSIS

Ideal 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 in-house 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

1,400,000

Activity analysis determines that the appropriate cost drivers and their usage for the four activities are:

Activities

Cost Drivers

Total 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

tests

Instructions

(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?