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Department
Accounting
Course
ACTG 2020
Professor
Ben Kelly
Semester
Winter

Description
Actg.  2020   Assignment  #1  (corrected  version)   Product  Costing:  Department  versus  Activity-­‐Based  Costing  for  Overhead     Advertising  Technologies  Inc.  (ATI)  specializes  in  providing  both  published  and  online  advertising  services   for  the  business  marketplace.  The  company  monitors  its  costs  based  on  the  cost  per  column  inch  of   published   space   printed   in   print   advertising   media   and   based   on   the   cost   per   minute   of   telephone   advertising  time  delivered  on  “The  AD  line”,  a  computer  based,  online  advertising  service.  ATI  has  one   new  competitor,  Tel-­‐A-­‐Ad,  in  its  local  tele-­‐advertising  marketing;  and  with  increased  competition,  ATI’s   president   Robert   Beard,   believes   that   predatory   pricing   by   Tel-­‐a-­‐Ad   has   caused   the   problem.   The   following  is  a  recent  conversation  between  Robert  and  Jane  Minnear,  Director  of  Marketing  for  ATI.     Jane:  I  just  received  a  call  from  one  of  our  major  customers  concerning  our  advertising  rates  on  ‘The  AD   Line”  who  said  that  a  sales  rep  from  another  firm  (it  had  to  be  Tel-­‐a-­‐ad)  had  offered  the  same  service  at   $1  per  minute,  which  is  $1.50  per  minute  less  than  our  price.     Robert:  It’s  costing  about  $1.27  per  minute  to  produce  that  product.  I  don’t  see  how  they  can  afford  to   sell   it   so   cheaply.   I’m   not   convinced   that   we   should   meet   the   published   ads,   which   we’re   more   experienced  with  and  where  our  margins  are  high  and  we  have  virtually  no  competition.     Jane:   You   may   be   right.   Based   on   a   recent   survey   of   our   customers,   I   think   we   can   raise   the   price   significantly  for  published  advertising  and  still  not  lose  any  business.   Robert:  that  sounds  promising;  however,  before  we  make  a  major  recommitment  to  publishing,  let’s   explore  other  possible  explanations.  I  want  to  know  how  our  costs  compare  with  our  competitors.  Maybe   we  could  be  more  efficient  and  find  a  way  to  earn  a  good  return  on  tele-­‐advertising.       After  this  meeting,  Robert  and  Jane  requested  an  investigation  of  production  costs  and  comparative   efficiency  of  producing  published  versus  online  advertising  services.  The  controller,  Tim  Gentry,  indicated   that  ATI’s  efficiency  was  comparable  to  that  of  its  competitors  and  prepared  the  following  cost  data:       Published  Advertising   Online  Advertising   Est.  #
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