COST ACCOUNTING CASE ASSIGNMENT #1: Cortland Manufacturing, Inc.

BACKGROUND -

CMI manufactures several different models of computers, distributed to retail outlets throughout the 50 states. The company is proud of the user-friendly computers it produces, in particular their graphics capability. CMI claims the superb graphics are what distinguish its products from competitors.

CMI purchases raw materials in components and subassemblies made to its specifications from a very small group of highly reliable suppliers. It uses a single facility to house both manufacturing facility and administrative and sales offices. The factory workers operate three kinds of machines. Inspecting machines check the raw materials and test components and subassemblies to assure they are working to specifications. Soldering machines solder various components as necessary. Finally assembly machines put all the components and subassemblies together into finished computers. The processes can vary by computer model.

REQUIRED:

Don't try to begin answering questions until you have studied the case information carefully. Careless reading will result in careless errors! Just take a few extra minutes to understand it all.

1. Calculate the predetermined overhead rate the company is currently using. (Where should you look for the machine hours?)

2. Using the information from the exhibits and Q1, calculate the manufacturing cost of ONE Cortland 1000 and ONE Cortland 2000.

3. Calculate the selling price, under the current system, of ONE Cortland 1000 and ONE Cortland 2000.

4. Next, you are going to begin to analyze the ABC system. In order to do this, however, your study of Exhibits 2 and 3 should have told you that you are going to have to convert the information the company currently measures into the information you need for the ABC analysis. First, how many raw material orders did the company receive for each model?

5. How many batches of each model did the company pack and ship?

6. How many machine setups does Cortland do for each model?

7. Calculate a rate for each activity in Exhibit 2.

8. Use the rates calculated in Q7 to apply overhead to each product line: Cortland 1000 and 2000.

9. Calculate the overhead per computer for a Cortland 1000 and a Cortland 2000.

10. Calculate the manufacturing cost of ONE Cortland 1000 and ONE Cortland 2000 using ABC overhead allocation.

11. Show how the company would determine a selling price for each model under the ABC system.

12. Should Mr. Works adopt an ABC system for internal analysis? Your answer should address the question very specifically to this case - no generalities about ABC from the book. It should contain two points in favor of ABC, and two drawbacks that he should be aware of.

13. Mr. Works is also concerned about future product development. They have several new models under development at this time. If an ABC system is used, list two characteristics of a new model that will make it more costly to manufacture.

Attachment:- Assignment.rar