a. The first three steps in an activity-based cost implementation are to define the resource categories, activity centers, and first-stage resource drivers. These steps have already been completed at ACC, and the results are displayed in Figure I for Case 6. Using the information from the case, perform the next step for the implementation team and determine the second-stage cost drivers ACC should use in its ABC system. Support your choices with discussion
b. Using the second-stage oust drivers identified in part (a), compute the new product costs for Products 101, 102, and 103.
c. Modify Figure 2 for Case 6 and include the cost drivers identified in part (a).
d. Compare the product costs computed under the current cost accounting system to the product costs computed under the activity-based system.
e. Explain the differences in product cost.
f. Given the new information provided by the ABC system, recommend a strategy ACC should pursue to regain its margins, and comment on specific improvements that would reduce ACC’s overhead burden in the long run.
Component (ACC) began in 1979 as a small machine shop supplying the Big Three automakers. The business is now a $2 billion component manufacturing firm. During the three decades from 1979 to 2009, ACC expanded from a common machine shop to a modern manufacturing operation with CNC machines, automatic guided vehicles (AGVs), and a world-class quality program. Consequently, ACC’s direct- labor cost component has decreased significantly since 1979 from 46 percent to 11 percent. ACC’s current cost structure is as follows:
Manufacturing overhead ……… 43.6%
Selling and administrative expenses…. 17.8%