tenalpina tools, product line profitability Case Solution
- Estimate product costs for Pitons, Hammers and Rock Nut sets using the ABC method to combine data on overhead activities.
Product costs via ABC method has been calculated below:
|Work stations:||Cold roll and cut||Oven & drop-
|Bore||Deburr and polish||Assemble||Injection mold||Package||Total|
|pitons: 4200||pitons 1||pitons 1||pitons 1||pitons 15||pitons 0.1||5.06/
|hammers 1||hammers 10||hammer s 5||hammers 45||hammer s 1||hammers 1||36.58/
|rocknut 12||rocknut 6||rocknut
edges in cm
Question 2:. Why is Tenalpina struggling with the data that they have available, in your opinion, comment on the statement made by Jeremy on page 4 of the case -- is all the extra work worth it?
Yes, its totally worth it as
From the three cost-allocation approaches, the activity based costing appears to fit the circumstance the best due to the fact that the cost of each activity are allocated particularly per item. This way it shows what expense task is required for every item making the price a whole lot more accurate. Some products do not utilize some workstations to make sure that expense would certainly not be factored into the product price. Only the work stations that the item uses will certainly be utilized for the price of the item. This reveals a more accurate expense.
.This give management a clear picture of how efficient each job terminal is executing and which items are the heaviest expense vehicle drivers. It properly mirrors costs of each task or solution provided within the company, while the straight technique does not. It functions much better than the sequential approach because it designates all prices to all departments while neglecting the series. Hence, it would be an effective approach of expense appropriation to make use of:
Below are some of the reasons why:
- Accurate Item Price:
- ABC brings precision as well as dependability in item cost determination by focusing on domino effect connection in the price incurrence.
- ABC creates trustworthy as well as correct product cost information in situation of greater diversity among the products made such as low-volume items, high-volume products..
- Details concerning Cost Behavior:
- ABC determines the real nature of price behavior and also helps in lowering prices as well as identifying tasks which do not add value to the item.
- Mapping of Activities for Price Item:
- ABC utilzes multiple expense drivers, a number of which are transaction based as opposed to item quantity.
- Tracking of Expenses Expenses:
- Activity Based Costing tracks prices to areas of managerial obligation, processes, consumers, departments besides the product expenses.
- Much better Decision Making:
- ABC substantially improves the supervisor's decision making as they could make use of more reliable item price data.
- Price Administration:
- ABC gives cost drivers prices and also details on purchase quantities which are extremely valuable to administration for cost monitoring as well as efficiency evaluation of obligation centres.
Question 3: What are your recommendations and why that you would make to Guilia and to the management team at Tenalpina
She is recommended to plainly switch Tenalpina to activity based costing. ABC will offer Guilia a much more precise and accurate price per unit for every product. Via this technique they will find that the expense per hammer set was remarkably low, which would certainly explain the greater buyer demand for hammer sets, so I would suggest raising price...........................................
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