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Activity-Based Costing Assignment Essay Solution

Activity-Based Costing Assignment
Order ID:89JHGSJE83839 Style:APA/MLA/Harvard/Chicago Pages:5-10

Instructions:

Activity-Based Costing Assignment

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Assignment 1: Discussion—ABC or Activity-Based Costing

In your readings this module, you were introduced to Activity-Based Costing or ABC. It is a method used to determine a reliable predetermined benchmark for the allocation of overhead costs to the products produced based on their activity levels. In this discussion, we will work a case study on ABC together. For your initial response, attempt to answer the questions yourself and post all the required items into the Discussion Area. You may want to post some elements during different days so the class can work this problem together. Then in your response postings, help each other with misunderstandings or miscalculations.

Tasks:

Examine the case below and then…

Calculate the amount of overhead allocated to small and large advertising campaigns under existing methods.

Apply activity-based costing to calculate the cost per cost driver for each of the cost pools.

Use the costs per cost driver to calculate the activity-based overhead applicable to small and large campaigns.

Calculate the percentage to be added to direct advertising costs to recover overhead costs under activity-based costing.

Merit-o-cracy PLC is a specialist advertising agency. It has been long-established but is experiencing difficulties in winning new business. The Chief Executive believes that its pricing methods are leading to the loss of large customer advertising campaigns while it is consistently winning smaller business.

Merit-o-cracy costs work for pricing purposes on the basis of direct advertising costs (i.e. space or time purchased from newspapers, radio and TV) plus 100%. The 100% is intended to cover all the overheads of the business, which run at $2 million per year. It does not include any profit margin. This budget cost comprises:

Creative staff                                        $500,000

Production staff                                    $750,000

Administrative & support staff              $300,000

Rental and associated costs                  $450,000

Merit-o-cracy classifies its advertising campaigns as either small or large. Of the 350 campaigns the agency wins, about 325 are classified as small. A typical small advertising campaign incurs direct advertising costs of $4,000 each (and therefore is allocated $4,000 of overheads under current methods). The other 25 advertising campaigns are large and incur direct advertising costs of $28,000 each.

Merit-o-cracy’s accountant has heard of activity-based costing. After speaking to the management team, she has gathered information on the most common causes of costs. She believes that creative staff costs are linked to the number of advertising campaigns the agency competes for. Production staff costs are related to the number of advertising campaigns the agency wins. Administrative and support staff costs are related to the number of customers the agency has. Rental and associated costs are people-based and as a similar number of staff is employed in each of the three departments, the costs should be equally shared.

The accountant has also collected data on the activity levels in each of the three departments over the budget period. These are:

Creative

800 advertising campaigns the agency bids for

400 of these are bids for large campaigns and 400 for small campaigns

Production

350 advertising campaigns the agency wins

325 of these are small campaigns and 25 large campaigns

Admin & support

400 customers the agency services

300 of these are customers with small campaigns and 100 have large campaigns

Submission Details:

By Saturday, February 25, 2017, post your initial response to the Discussion Area below. Through Wednesday, March 1, 2017, review and comment on at least two peers’ responses on two different days. Your response should be thorough and address all components of the posted question in detail, include citations of all sources, where needed, according to APA style, and demonstrate accurate spelling, grammar, and punctuation

Do the following when responding to your peers:

RUBRIC

Excellent Quality

95-100%

Introduction

45-41 points

The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.

Literature Support

91-84  points

The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.

Methodology

58-53 points

Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.

Average Score

50-85%

40-38 points

More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.

83-76  points

Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.

52-49  points

Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.

Poor Quality

0-45%

37-1 points

The background and/or significance are missing. No search history information is provided.

75-1 points

Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.

48-1 points

There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met

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