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    Precision Motors Division Case

    Uploaded by

    Aliza Rizvi
    The document provides a reconciliation of traditional and new cost accounting systems for a manufacturing company, breaking costs down into categories like material, labor, overhead, and support costs. It also shows the costs for manufacturing five motor orders under both the traditional and new activity-based costing system, demonstrating how costs like order processing and special components are allocated. The new system aims to more accurately assign overhead and support costs based on cost drivers like the number of different component types and production orders.

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    © All Rights Reserved
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    Precision Motors Division Case

    Uploaded by

    Aliza Rizvi
    663 views9 pages
    The document provides a reconciliation of traditional and new cost accounting systems for a manufacturing company, breaking costs down into categories like material, labor, overhead, and support costs. It also shows the costs for manufacturing five motor orders under both the traditional and new activity-based costing system, demonstrating how costs like order processing and special components are allocated. The new system aims to more accurately assign overhead and support costs based on cost drivers like the number of different component types and production orders.

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    7. Precision Motors Division case

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    The document provides a reconciliation of traditional and new cost accounting systems for a manufacturing company, breaking costs down into categories like material, labor, overhead, and support costs. It also shows the costs for manufacturing five motor orders under both the traditional and new activity-based costing system, demonstrating how costs like order processing and special components are allocated. The new system aims to more accurately assign overhead and support costs based on cost drivers like the number of different component types and production orders.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    663 views9 pages

    Precision Motors Division Case

    Uploaded by

    Aliza Rizvi
    The document provides a reconciliation of traditional and new cost accounting systems for a manufacturing company, breaking costs down into categories like material, labor, overhead, and support costs. It also shows the costs for manufacturing five motor orders under both the traditional and new activity-based costing system, demonstrating how costs like order processing and special components are allocated. The new system aims to more accurately assign overhead and support costs based on cost drivers like the number of different component types and production orders.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 9
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    The document discusses the reconciliation of a traditional cost system to a new cost system, including cost pools, cost drivers, and calculations of total costs under each system.

    The document mentions material costs, material-related overhead, labor costs, production-related overhead, engineering costs, tooling costs, administrative costs, order processing costs, and special components costs as different cost pools.

    The document states that production-related overhead is allocated based on direct labor, and support-related overhead is allocated as 35% of other manufacturing costs. Order processing costs and special components costs are also allocated based on number of orders and number of requisitions.

    Exhibit 2: 2009 Reconciliation of traditional cost system to new cost system (000 in

    Euros)
    Traditional Transferred

    Material 80,483

    Material-Related Overhead 4,599


    Labor 27,594
    Production-Related 91,980
    Overhead
    Manufacturing Costa 204,656(74%)
    Engineering Costs 9,198 4,829
    Tooling Costs 17,246 0

    Administrative Costs 45,990 20,696

    Support Related Costa 72,434(26%)b 25,524(9%)

    Order Processing Cost 10,578


    Special Components Cost 14,947
    Total Cost 277,090 0
    aPercent of Total Cost
    bThis corresponds to the 26% labelled support-related overhead on page 2.

    Exhibit 3: Manufacturing Costs for Five Motor Orders


    A
    1
    Cost of Base Motor EUR 233.0
    Cost of All special components2 30.4
    # of different types of special components per motor 1
    # of Motors ordered 1

    Notes:
    The cost of the base motor and of each special component were calculated using the traditional cost system but with the new
    smaller support related cost pool. The order processing and special component related overhead costs were then added.
    1Cost of base motor
    Material 69.0
    Material related OH 4.00
    Direct Labour 27.00
    Production related OH 90.00
    Support related overheada

    a Excludes order processing and special components costs


    b Different types of special components are assumed to have same cost of Eur30.4 (for illustrative purposes)
    Process Oriented Direct Material

    80,483 Direct labour

    4,599 Material Overheads 6% of material cost


    27,594 Production Overheads direct labour
    91,980 Support related Overheads 35% of other manufacturing costs
    Total cost
    204,656(74%)
    4,369
    17,246

    25,295

    46,910(17%)

    10,578
    14,947
    277,090

    B C D E

    EUR 233.0 EUR 233.0 EUR 233.0 EUR 233.0


    60.7 91.1 151.8 303.5
    2 3 5 10
    1 1 1 1

    2Cost of special componentsb


    Material 9.2
    Material related OH 1.00
    Direct Labour 3.00
    Production related OH 11.00
    EUR 189.3 EUR 24.7
    44 Support related overheada 6
    EUR 233.0 EUR 30.4
    Old System
    A B C D E
    78 87 97 115 161

    30 33 36 42 57

    5 5 6 7 10
    100 110 120 140 190
    75 82 90 106 146
    287 318 349 410 564
    New System

    Activity Cost pools Pool cost Pool driver Driver total Pool rate
    # of different types of special
    Order Processing Cost 10,578,000 components 30,000 352.6000
    # production orders & requistion
    Special Components Cost 14,947,000 (special components) 325,000 45.9908
    Total Cost 25,525,000

    A B C D
    1
    Cost of Base Motor (per motor) 233.00 233.00 233.00 233.00
    Cost of All special
    components (per motor) 30.40 60.70 91.10 151.80
    Costs of order processing
    (per types of component) 352.600 705.200 1057.800 1763.000

    Costs of special
    components (per
    requistion) 45.991 91.982 137.972 229.954
    Total Cost 661.990769230769 ### ### ###
    unique pro10 000
    special co 30000
    0rders 65625

    total comp 1000000

    #motors 630,000
    custom mot 567000

    233.00

    303.50

    3526.000

    459.908
    ###
    Old System
    Orders
    Units A B C D E Units
    1 287 318 349 410 564 1
    10 2,874 3,181 3,488 4,103 5,638 10
    20 5,748 6,362 6,977 8,205 11,277 20
    100 28,740 31,812 34,883 41,027 56,384 100

    Units
    1
    10
    20
    100
    New System
    Orders
    A B C D E
    662 1,091 1,520 2,378 4,522
    6,620 10,909 15,199 23,778 45,224
    13,240 21,818 30,397 47,555 90,448
    66,199 109,088 151,987 237,775 452,241

    A B C D E
    662 1,091 1,520 2,378 4,522
    3,033 3,734 4,437 5,841 9,351
    5,667 6,671 7,678 9,689 14,716
    26,739 30,167 33,606 40,473 57,636

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