Bob Randall, cost accounting manager for Hemple Products, was asked to determine
ID: 364228 • Letter: B
Question
Bob Randall, cost accounting manager for Hemple Products, was asked to determine the costs of the activities performed within the company's Manufacturing Engineering Department. The department has the following activities: creating bills of materials (BOMs), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tools. The resource costs (from the general ledger) and the times to perform one unit of each activity are provided below.
Total machine and labor hours (at practical capacity):
The activity, designing tools, uses the number of tools designed as the activity driver. Using a traditional approach, the cost of the designing tools activity was determined to be $179,000 (see Exercise 4.19) with an expected activity output of 1,000 for the coming year. During the first week of the year, two jobs (Job 150 and Job 151) had a demand for 10 and 20 new tools, respectively.
Required:
Calculate the capacity cost rate for the Manufacturing Engineering Department.
Using the capacity cost rate, determine the activity rates for each activity.
Calculate the cost of designing tools that would be assigned to each job using the TDABC-derived activity rate and then repeat using the traditional ABC rate. What might be the cause or causes that would explain the differences in the two approaches?
Now suppose that time for creating BOMs is 0.50 for a standard product but that creating a BOM for a custom product adds an additional 0.3 hour. Express the time equation for this added complexity and then calculate the activity rate for the activity of creating a BOM for custom products.
Unit Overhead Cost Activity Cost x Usage Model X Model Y Setting up equipment Model X x Model Y x Ordering Materials Model X x Model Y x Machining Model X x Model Y x Receiving Model X x Model Y x Total Model X Model Y Setting up equipment: x x Machining x x TotalExplanation / Answer
Answer:- The main problems which are faced by those firms which are having a physical product as in the case of Dell is that these firms require some kind of storage space. infrastructure for logistics and manpower to manage it. One of the main advantages which is there with eBay is that the firm does not have any physical product and the only resource which eBay can think of outsourcing is related to manpower. For eBay , outsourcing the customer support function specially email enquiries can be easily outsourced to other countries. The prime requirement of this outsourcing is that the people must know the language of English which is an international language so many knows about it. Almost 30% of its total email support is outsourced by eBay and it can be increased up to the scale of 50% with the help of Mrs. Daltons three tire plan.
Answer:- There are many critical issues related to the customer service inquires and the most important are social security numbers and credit card numbers, these activities should not be outsourced. There can be some doubt about the security of the communication infrastructure in some of the outsourcing countries along with the reliability of manpower hired in these countries. The investment which is required to ensure the credibility and security will increase the cost of the outsourcing. It will also require to conduct background check on the employees which is again a costly affair.
Answer:- A three party vendor is required in the process indicated by Mrs. Dalton including Build, operate, and transfer who will need to acquire or establish the operating center, staffing and then properly managing it. The main advantage of this model is that the risk associated with the establishment of assets and developing the manpower pool are confided to third party vendor only. While the unproven utilization of this method can be seen as the main demerit of this model. This option can be treated as the hybrid of two options i.e. implementing the outsourcing with the domestic and international vendors and secondly, elimination of middle man buying or creating the staff outsourcing for the eBay business. There are some amount of risks with the first option but it will reduce cost while the second option is best for cost reduction but has greater risks. When it comes to third party vendors in other countries, some level of opportunism can be seen but with the help of contract negotiation, this can be dealt with.
Answer:- They will decide in favor of BOT. In all the three plans , the best risk to reward ratio is related to BOT. This will allow the eBay to have the control over the outsourced assets resulting in cost reduction and have a better quality control . A good amount of research has been conducted by Mrs. Dalton and she will be able to convince the top management with her data.