Cost Allocation for all cost categories in the value chain, different costs for
ID: 2509842 • Letter: C
Question
Cost Allocation for all cost categories in the value chain, different costs for different purposes
Laser Tecnologia Srl develops, assembles and sells two product lines:
- Product Line A (laser scanning systems)
- Product Line B (laser cutting tools).
Product Line A is sold exclusively to the Italian Department of Defence under a cost-plus reimbursement contract. Product Line B is sold to commercial organisations. Laser Tecnologia classifies costs in each of its six value-chain business functions into two cost pools: direct product-line costs (separately traced to Product Line A or B) and indirect productline costs. The indirect product-line costs are grouped into a single cost pool for each of the six functions of the value-chain cost structure:
Value-chain indirect product-line cost function 1 R&D; 2 Product design 3Production 4 Marketing 5 Distribution 6 Customer service Base for allocating indirect costs to each product line Hours of R&D; time identifiable with each product line Number of new products Hours of machine assembly time Number of salespeople Number of shipments Number of custom er visits Summary data in 2015 areExplanation / Answer
Workings 1:
Computation of indirect costs
Answer to question 1
Computation of Total costs for product line B
Answer to question 2
Computation of Direct and indirect costs for the groups
Answer to question 3
Computation of inventorisable cost under GAAP
Answer to question 4
Computation of allowable costs for Product line A
Answer to Question 5
The firms have a single accounting system for the purpose of reporting external costs. However for the purpose of internal controls, the firm will prepare multiple cost sheets w.r.t. costing decision, pricing decision, reimbursement calculation etc. The baseline accounting system is single and one which is enabled to capture the costs at all levels and such information can be used to prepare the cost sheet for the various defined purposes. When we have all such basic information available from the single accounting information system, these differences are very basic and there is no need to have multiple accounting systems.
Particulars Formulae R&D Design Production Marketing Distribution Customer Service Total Total Cost (million) A 20 6 24 7 2 1 60 Basis of allocation R&D time New products MHR Sales People Shipments Customer visits Units for Product Line A B 6000 8 70000 25 600 1000 Units for Product Line B C 2000 4 50000 45 1400 4000 Total units D=B+C 8000 12 120000 70 2000 5000 Cost incurred for Product line A (million) E=A*B/D 15 4 14 2.5 0.6 0.2 36.3 Cost incurred for Product line B (million) F=A*C/D 5 2 10 4.5 1.4 0.8 23.7