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Safety Monitoring Device Inc

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Submitted By zeti07
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Q2 Why were (a) Lourdes and (b) Greg so interested in having the company change its cost system? The both have 2 concern, better decision making and bigger bonuses. Lourdes concern that if she has better information she can make better pricing decision and do better sales planning. While Greg will have better info for making process improvement which can reduce the cost. the information they have might lead to production in larger batches and lesser shipment. if they make better decision making, this will lead to higher profits and larger bonuses.
Q3 What are the effect, if any, of changing the company’s costing method? Specifically, are the differences between these three methods significant in term of? a) Their effect on individual product costs? Changing the costing method does have material effects on product costs: ODD TGD Existing costing method 232.00 255.00 Proposed ABC method 211.96 295.08 “In-between” method 218.12 282.76

Both direct material and direct labor cost are mostly similar in all systems. The difference are in the assignment of overheads to product. Althought the production of the 2 products use different amount of overhead, they are still been allocated equally in the existing system The proposed ABC system uses multiple cost pools, which better effect the individual products consumption of overhead resources. The ODD get less overhead, so full reported cost go down (-8.6%)relative to the old system. The TGD get high overhead, so full reported cost goes up (+15.7%) This cost will give material effect on some management decisions, such as pricing

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