Cost Management Problems & Exercises
Questions
What are the key strategic issues facing Laurent, and how can ABC costing assist in resolving these issues?
Questions
Classify each of the activities as a unit-level, batch-level, product-level, or facility-level activity.
Identify a potential cost driver for each activity in requirement 1.
Activity Levels and Cost Drivers Steve’s Slop Shop, a small hamburger shop, has identified the resources used in
its operations (assume each customer’s order is a batch for this example):
Questions
Classify its costs as unit-level, batch-level, product-level, or facility-level costs.
Suggest a possible cost driver for each of the above items.
Activity-Based Costing in the Fashion Apparel Industry Fleet Street Inc., a manufacturer of high-fashion clothing
for women, is located in South London in the UK. Its product line consists of trousers (45%), skirts (35%),
dresses (15%), and other (5%). Fleet Street has been using a volume-based rate to assign overhead to each
product; the rate it uses is £2.25 per unit produced. The results for the trousers line, using the volume-based
approach, are as follows:
Recently, Fleet Street conducted a further analysis of the trousers line of product, using ABC. In the study,
eight activities were identified, and direct labor was assigned to the activities. The total conversion cost (labor
and overhead) for the eight activities, after allocation to the trousers line, is as follows:
Pattern cutting
Questions
Determine the profit margin for the trousers line using ABC
Comment on the difference in comparison to the volume-based calculations.
