Cost Accounting

Accusage Company Case and Data Schedules

Accusage Company Case Background Accusage Company manufactures a wide range of smallgoods (processed meats). Twenty years ago Accusage Company had only three product lines (Mettwurst, Bologna sausage, and Saveloys). The company produced large volumes of each product, using very simple machinery and a lot of hard work.

The company still makes and sells a lot of the original three product lines, but now also produces a wide range of low-volume speciality lines (Clobassy, Csabai, and Chorizo). The low-volume speciality lines are complex to produce and their short production runs involve a lot of extra machinery setups and material handling. But the current figures indicate that these speciality lines have very good profit margins.

The company has undergone some dramatic changes within the business over the past 20 years. The factory had seen the introduction of computer-controlled mincing and mixing machines and smoking ovens that replaced a lot of the direct labour operations, and an increased emphasis on quality and delivery performance. In fact, right across the business, more and more effort had been placed on keeping the customer happy.

Despite all this progress, the company seems to be struggling. Profits are declining, and for the company to survive senior management has indicated to staff that they must be more productive. Senior management also indicated that the company must focus on increasing sales, particularly in the range of high-margin specialty products.

The company's management accountant had become concerned about the conventional product costing system at Accusage Company. The manufacturing people were also sure that the costing system was distorting product costs.

Schedule 1 Resource Cost Categories and Resource Drivers

Cost category Cost Resource driver Wages $6,862,500 Number of employees

Building costs $1,830,000 Floor space Depreciation $1,220,000 Machine hours

Consumables $61,000 Orders placed by centre Energy $256,200 Kilowatt hours used

Other $61,000 Number of employees Total $10,290,700

Schedule 2 Resource drivers consumed by activity centres

Wages Building costs Depreciation Consumables Energy Other (employees) (m2) (machine hours) (orders) (kilowatt hours) (employees)

3 300 0 10 10000 3 12 700 0 10 12000 12

2 700 0 10 12000 2 30 1,300 4800 180 240000 30 30 1,300 6100 120 370000 30 24 1,300 1200 180 240000 24 12 700 0 20 10000 12

6 400 0 10 10000 6

119 6,700 12100 540 904000 119

Schedule 3 Activities and resource drivers used - Mixing

Percentage of labour time Percentage of floor space

Percentage of machine hours

5% 5% 0% 10% 5% 0% 20% 10% 0% 50% 60% 100% 10% 10% 0%

5% 10% 0% 100% 100% 100%

Total quantity of resource drivers across all activity centres

Activity centres New Product Development

Sales and distribution Inspecting

Mincing Mixing

Smoking and Packing Administration

Corporate management

Cost categories (resource drivers)

- All Wages Costs can be considered indirect costs for the purposes of this case. - The current conventional approach to allocation of overheads is to use a plantwide rate.

- The current plantwide rate in use can be approximated by using the estimated annual number of units produced as the level of activity.

Clean mixers

Activity Set up scales

Weigh ingredients Load mixers

Operate mixers

Move mixture to smokehouse Total

* All Calculations to 4 decimal places

In this Activity Centre, the only activity that makes significant use of machinery (and therefore depreciation and energy) is Operate mixers

Various consumables used in this Activity Centre are almost all used by the Operate mixers personnel, who order these supplies as and when needed.

* All Calculations to 4 decimal places

Schedule 4

Activity cost Activity driver Annual quantity of activity driver

$346,008 Assigned directly to products $357,782 No. of invoices 6,100 invoices $338,379 No. of purchase orders 3,100 purchase orders $198,294 No. of production schedules 1,220 production schedules

$30,756 No. of reports 1,220 reports $572,534 No. of sales orders 4,880 sales orders $317,958 No. of dispatches 3,100 dispatches $173,004 Assigned directly to new products lines $130,505 No. of batches 1,220 batches

$30,756 No. of batches 1,220 batches $30,756 No. of batches 1,220 batches

$192,296 No. of batches 1,220 batches $192,296 No. of batches 1,220 batches

$1,519,038 No. of kilograms 244,000 kilograms $366,838 No. of batches 1,220 batches $192,296 No. of batches 1,220 batches $210,049 No. of batches 1,220 batches

?? No. of batches 1,220 batches ?? No. of batches 1,220 batches ?? No. of batches 1,220 batches ?? No. of kilograms 244,000 kilograms ?? No. of batches 1,220 batches ?? No. of kilograms 244,000 kilograms

$437,853 No. of products 976,000 products $157,387 No. of trays 19,520 trays

$87,571 No. of trays 19,520 trays $1,085,048 No. of trays 19,520 trays

$87,571 No. of trays 19,520 trays $54,028 No. of trays 19,520 trays $30,756 No. of trays 19,520 trays

$105,324 No. of trays 18,540 Finished trays “??” indicates that these figures must be calculated.

Corporate management Process receivables

Process payables Production planning

List of activities

Activity

Disposal of substandard meat Move to mincing room

Set up mincer Weigh and sort ingredients

Load mincer

Reports to Health Dept Process sales order

Dispatch sales order New Product Development

Inspect meat

Load mixers Operate mixers

Clean mixers Move mixture to smokehouse

Pack into skins

Operate mincer Unload and Clean mincer

Move to mixing room Set up scales

Weigh ingredients

Setup smokehouse Move to smokehouse

Smoke products Unload smokehouse

Inspect finished products Disposal of substandard product

Move to truck * All Calculations to 4 decimal places

Schedule 5

Annual quantity of activity driver

$92,839 Assigned directly to products 600 invoices 200 purchase orders 170 production schedules 170 reports 610 sales orders 500 dispatches

$0 Assigned directly to new products lines 170 batches 170 batches 170 batches 170 batches 170 batches

49,000 kilograms 170 batches 170 batches 170 batches 170 batches 170 batches 170 batches

49,000 kilograms 170 batches

49,000 kilograms 195,200 products

1,960 trays 1,960 trays 1,960 trays 1,960 trays

- trays - trays

1,960 Finished trays $2 per kilogram

Assigned directly to products

$9 per unit of product 1,200

196,000

Process receivables Process payables

Production planning Reports to Health Dept

Process sales order

Activities consumed Corporate management

Mettwurst

Clean mixers Move mixture to smokehouse

Pack into skins Setup smokehouse

Move to smokehouse

Move to mixing room Set up scales

Weigh ingredients Load mixers

Operate mixers

Set up mincer Weigh and sort ingredients

Load mincer Operate mincer

Unload and Clean mincer

Dispatch sales order New Product Development

Inspect meat Disposal of substandard meat

Move to mincing room

Smoke products Unload smokehouse

* All Calculations to 4 decimal places

Inspect finished products Disposal of substandard product

Current Market Selling Price Batch size

Move to truck Direct Materials

Annual Volume

Schedule 6

Annual quantity of activity driver

$11,131 Assigned directly to products 200 invoices 100 purchase orders

60 production schedules 60 reports

180 sales orders 100 dispatches

$85,947 Assigned directly to new products lines 50 batches 50 batches 50 batches 50 batches 50 batches

11,750 kilograms 50 batches 50 batches 50 batches 50 batches 50 batches 50 batches

11,750 kilograms 50 batches

11,750 kilograms 24,400 products

490 trays 490 trays 490 trays 490 trays 490 trays 490 trays 470 Finished trays

$4 per kilogram Assigned directly to products

$13 per unit of product

500 23,500

Direct Materials

Current Market Selling Price Batch size

Annual Volume

Move to smokehouse Smoke products

Unload smokehouse Inspect finished products

Operate mixers Clean mixers

Move mixture to smokehouse Pack into skins

Setup smokehouse

Disposal of substandard product Move to truck

* All Calculations to 4 decimal places

Unload and Clean mincer Move to mixing room

Set up scales Weigh ingredients

Load mixers

Move to mincing room Set up mincer

Weigh and sort ingredients Load mincer

Operate mincer

New Product Development Inspect meat

Disposal of substandard meat

Corporate management Process receivables

Process payables Production planning

Reports to Health Dept Process sales order

Dispatch sales order

Activities consumed

Csabai