...What-If Analysis and Activity-Based Budgeting Forecasting Resource Demands Excerpted from Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits By Robert S. Kaplan, Steven R. Anderson Harvard Business Press Boston, Massachusetts ISBN-13: 978-1-4221-2227-3 2227BC Copyright 2008 Harvard Business School Publishing Corporation All rights reserved Printed in the United States of America This chapter was originally published as chapter 5 of Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits, copyright 2007 Harvard Business School Publishing Corporation. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@harvardbusiness.org, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163. You can purchase Harvard Business Press books at booksellers worldwide.You can order Harvard Business Press books and book chapters online at www.harvardbusiness.org/press, or by calling 888-500-1016 or, outside the U.S. and Canada, 617-783-7410. chapter five WHAT-IF ANALYSIS AND ACTIVITY-BASED BUDGETING Forecasting Resource Demands the full benefits from Time-Driven ABC only if they adjust the supply of...
Words: 7486 - Pages: 30
...Sippican Corporation Questions: 1. Given some of the apparent problems with Sippican’s cost system, should executives abandon overhead assignment to products entirely and adopt a contribution margin approach in which manufacturing overhead is treated as a period expense? Why or why not? Answer: Consider Sippican is a manufacturer company with multiple products, using simple cost accounting system that directly allocate factory overhead to unit of product entirely through one single allocation base (i.e. 185 % of production run direct labor cost in this case) is although an inexpensive way while is sometimes distort actual contribution of the product. To our understanding from reading the article, Sippican is spending more on overhead than on either direct material or direct labor. Further, Sippican has considerable diversity in its product mix. Each product may contain different degree of spending on indirect or supporting resources, and high variety on product and consumer characteristics. As such, activity-based cost system is considered to be a more accurate costing of present resource that will enable Sippican to project its future resource demands more effectively. 2. Calculate the practical capacity and the capacity cost rates for each of Sippican’s resources: production and setup employees, machines, receiving and production control employees, shipping and packaging employees, and engineers. Answer: See the Q2 worksheet. 3. Use these capacity cost rates...
Words: 523 - Pages: 3
...What-If Analysis and Activity-Based Budgeting Forecasting Resource Demands Excerpted from Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits By Robert S. Kaplan, Steven R. Anderson Harvard Business Press Boston, Massachusetts ISBN-13: 978-1-4221-2227-3 2227BC Copyright 2008 Harvard Business School Publishing Corporation All rights reserved Printed in the United States of America This chapter was originally published as chapter 5 of Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits, copyright 2007 Harvard Business School Publishing Corporation. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@harvardbusiness.org, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163. You can purchase Harvard Business Press books at booksellers worldwide.You can order Harvard Business Press books and book chapters online at www.harvardbusiness.org/press, or by calling 888-500-1016 or, outside the U.S. and Canada, 617-783-7410. chapter five WHAT-IF ANALYSIS AND ACTIVITY-BASED BUDGETING Forecasting Resource Demands the full benefits from Time-Driven ABC only if they adjust the supply of...
Words: 7486 - Pages: 30
...Individual Paper: Activity-Based Costing Matija Karaula Individual Paper: Activity-Based Costing Sippican Corporation Course: B2B Pricing: Negotiation, Calculation, and Strategy Matija Karaula B2B Pricing: Negotiation, Calculation, and Strategy Individual Paper: Activity-Based Costing 1) Defining the problem The main problem of a Sippican corporation was a low pre-tax operating income (1.8%). To solve that problem, a cause had to be found. Sippican reported gross margins of 35% on valves, 5% on pumps and 38% on flow controllers. After looking at a gross margins of the three product lines, one would think that pumps were an issue to work on, and a main cause for a low operating income, because the pump sales accounted for 47,36% of a total sales in March with just 5% operating margin. However, the method of measuring the product profitability had to be questioned. To be more accurate, the method of assigning the overhead costs to each product line was the reason for inaccurate gross margins of the Sippican´s product lines. Exhibit 1 – Result of a wrong overhead cost assignment Wrong assignment of overhead costs Innacurate product profitability Inappropriate product pricing strategy Lower operating income The method of calculating the manufacturing overhead used by Sippican would be accurate if every of their three product lines was of the same or similar complexity. More complex products require more indirect work so one cannot simply...
Words: 2255 - Pages: 10
