February 1, 2016
Some Doofus Professor
Manufacturing Analysis Paper
A regulatory analysis for the Ideal Manufacturing Company revealed several issues with the company. While the Research and Development portion of the company has been successful, the prestige is bought with significant costs which the company hopes to offset with outside business. The issue at hand is to decide if Ideal should proceed with outside Research and Development for other enterprises to help offset the cost or find other avenues to pursue.
Activity-Based Overhead Costs and Drivers
Ideal Manufacturing activity-based uses in each activity cost item some amount of overhead. The four activity items exist …show more content…
Ideal Manufacturing would also ask the question, “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? (Kimmel, 2011) The calculation to determine the answer to this question would be to multiply the overhead rate to each activity that is completed. Using this formula would yield the results of prototype testing is 196,000, product design is 167,320, product development is 120,000, the market design would be 56,000. The total of $539,320 for the final outside manufacturing department would be determined by adding all totals together.
Beneficial Applications of Activity-Based Costing
The last question Ideal would ask would be, “What is useful to Ideal Manufacturing of applying activity-based costing to its R & D activity for both in-house and outside charging purposes?” (Kimmel, 2011) Benefits of using activity-based costing