Revising a time-driven activity-based cost system, adding products Refer to the Madison Dairy ice cream plant example described in this chapter.
(a) Suppose that production-related computer resource expenses of $18,000 per month have been inadvertently overlooked for inclusion in the cost system. Explain how the time-driven ABC model should be updated to reflect this cost.
Time-driven activity-based costing systems (TDABC or Time-Driven ABC) estimate two parameters and then assign indirect costs similar to the way direct costs are assigned.
Cost rate for each type of indirect resource
Identify all costs incurred to supply the resource
Identify the practical capacity supplied by the resource …show more content…
5-32 Part proliferation: role for activity-based costing An article in the Wall Street Journal by Neal Templin and Joseph B. White (June 23, 1993) reported on the major changes occurring at General Motors. Its new chief executive officer, John Smith, had been installed after the board of directors requested the resignation of Robert Stempel, the previous chief. John Smith’s North American Strategy Board identified 30 components that could be simplified for 1994 models. GM had 64 different versions of the cruise control/turn signal mechanism. It planned to reduce that to 24 versions the next year and the following year to just 8. The tooling for each one cost GM’s A. C. Rochester division about $250,000. Smith said, “We’ve been talking about too many parts doing the same job for 25 years, but we weren’t focused on it.” (Note that the tooling cost is only one component of the cost of proliferating components. Other costs include the design and engineering costs for each different