Management Accounting II – Case Study

Morrissey Forgings, Inc.

xxxQuestion 1 – Activity Based Manufacturing Cost

Activity Based Manufacturing Costs - Total

Details Ovens Stoves Total

Units 20,000 25,000 45,000

Materials 9,00,000 10,00,000 19,00,000

Labour & Benefits 11,00,000 12,50,000 23,50,000

Variable Overhead 4,80,000 6,00,000 10,80,000

Fixed Overhead Depreciation 3,55,556 4,44,444 8,00,000

  Rent 2,44,445 3,05,555 5,50,000

  Factory Support 7,02,000 4,68,000 11,70,000

Total 37,82,001 40,67,999 78,50,000

xxxQuestion 1 – Activity Based Manufacturing Cost

Activity Based Manufacturing Costs - Per Unit

Details Ovens Stoves Total

Materials 45 40 85

Labour & Benefits 55 50 105

Variable Overhead 24 24 48

Fixed Overhead Depreciation 18 18 36

  Rent 12 12 24

  Factory Support 35 19 54

Total 189 163 352

• Shipping Cost in 1983 = $10,00,000• No of units sold in 1983 in Core Area = 30,000• Shipping Cost/Unit in Core Area in 1983 = $33.33

• Shipping Cost in 1985 = $25,00,000• No. of stoves sold in 1985 in Core Area = 25,000• No. of oven sold in 1985 in Core Area = 5,000• No. of oven sold in 1985 in Non-Core Area = 15,000• Shipping Cost in Core Area = $10,00,000

Question 2 – Activity Based Shipping Cost

Activity Based Shipping Cost

Particulars Stove (No. of Units)

Ovens (No. of Units)

Total Shipping

Costs

Per Unit Shipping

Costs

Core 25,000 5,000 1,000,000 33.33

Non-core   15,000 15,000,000 100.00

• Selling Cost in 1983 = $12,50,000• No. of orders procured in 1983 in Core Area =

3,000• Shipping Cost/Unit in Core Area in 1983 =

$416.67

• Shipping Cost in 1985 = $31,25,000• No. of orders procured for stove in 1985 =

2,500• Selling cost for stoves = $10,41,667• No. of orders procured for ovens in 1985 =

10,000• Shipping Cost in Core Area = $20,83,333

Question 3 – Activity Based Selling Cost

Question 4 – Break-Even Calculation

Fixed Costs :• Manufacturing Overheads = Dep. + Rent + Factory Support• General ExpensesContribution = Sales-Variable Cost = Fixed Cost + Profit

Details Ovens Stoves

Sales 7,000,000 7,500,000

COGS 3,782,001 4,067,999

Gross Margin 3,217,999 3,432,001

Selling Cost 2,083,333 1,041,667

Shipping Cost 833,333 1,666,667

Sales Commission 350,000 375,000

General Expenses 245,000 245,000

Profit Before Tax -293,667 103,667

Fixed Manufacturing Overheads OVEN STOVES

Manufac. Overhead Depreciation 355,556 444,444

  Rent 244,444 305,556

  Factory Support 702,000 468,000

1,302,000 1,218,000+ +

General Expenses 245,000 245,000

Total Fixed Costs 1,547,000 1,463,000

Contribution 1,253,333 1,566,667Contribution/Unit 62.66665 62.66668

Break Even Units 24686.18 23345.74

Thank You