HSA 4180 Chapter Notes - Chapter 8: Profit Sharing

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3 Nov 2016

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Depends on several factors, especially the worth of the job performed. Large hcos may have hundreds of unique jobs. Internal equity fairness compared to other jobs inside the organization. The assigned pay rate for a job is a base rate. Sometimes compensation becomes more complicated: suppose a manger later finds that the base pay rate is no longer high enough to obtain and retain workers because of higher base pay in the community. This raise means the programmer job is paid more than the internal job point value. It upsets the internal equity of the programmer pay compared to pay for other jobs inside the hco. Sometimes managers face a dilemma and will have to balance between internal and external equity. After the base pay for a job is set, the pay for a specific person in that job might be increased because that person has extra education or years of experience beyond the minimum required.

Related Questions

iven 2 (two-period) Jobs with the following cost and flows.

Job A: will cost $50,000 in year 1 and will yield $84,000 inyear 2

Job B: will cost $80,000 in year 1 and will yield $120,000 inyear 2

Dwight and James are looking at these 2 jobs and will makechoices. Job B looks more attractive by using simple arithmetic ina static world; but since these will occur in different periods, weknow that the best way to evaluate each one is by getting the netpresent value of each job using each individual's discount rates.James is a patient and hard-working individual while Dwight is ahappy-go-lucky come what may surfer type.

a. Given 2 discount rates of 30% and 8% and knowing Dwight andJames' personalities, assign the discount rate appropriate to eachindividual. (2 points)

b. Solve for the NPVs of each Job for each individual. (Showyour solution). (6 points)

c. Based on the NPVs, which Job will Dwight pick and which Jobwill James pick? (2 points)

d. Solve for the IRR (show your solution). What does this number(IRR) mean for Dwight or James when they are trying to choosebetween Jobs A or B? (5 points)

AirComp Corporation produces component parts for the aircraftindustry. In prior years, they maintained a job-costing systemconsisting of direct materials and direct labor cost andmanufacturing overhead. Manufacturing overhead was allocated toproduction jobs using a single-indirect cost allocation rate, whichwas $115 per direct labor hour.

For 20x1, the Company decided to change the method of allocatingmanufacturing overhead to production jobs from the single-indirectcost allocation approach to the activity-based costing (âABCâ)indirect cost allocation approach. For purposes of developing theABC allocation rates, AirCompâs cost accounting team prepared thefollowing analysis:

Activity	Cost Driver	Allocation Rate
Material handling	Parts handled	$0.40
Lathe work	No. of lathe turns	$0.20
Milling	Machine hours	$20.00
Grinding	No. of parts ground	$0.80
Testing	No. of units tested	$15.00

For 20x1, AirCompâs cost accountant team prepared the followinganalysis of the direct costs and indirect cost activities for Job100 and Job 200, the only production jobs in process for theperiod:

	Job 100	Job 200
Direct materials cost	$9,700	$59,900
Direct labor cost	$750	$11,250
No. of direct manufacturing labor hours	25	375
No. of parts ground	500	2,000
No. of lathe turns	20,000	60,000
Machine hours	150	1,050
No. of units produced during period (all are tested)	10	200

Required

1.For each job, determine total per unit cost using direct laborhours to allocate manufacturing overhead to each job.

2.For each job, determine total per unit cost using anactivity-based costing approach to allocate manufacturing overheadcost to job.

3.Compare the per unit cost figures for each job computed instep a. and step b., above. Why do the new ABC approach differ fromthe single-indirect cost allocation systems differ in the amount ofthe per unit indirect cost allocated to each job (i.e. what was theimplications of the cost allocation method change on the amount ofper unit cost allocated to each job and what factors caused theobserved changes).

4.How might AirComp Corporation use the information from ABCallocation approach to better manage its business, i.e. what arethe advantages of using an activity-based costing approach?

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the gilster company, a machine tooling firm, has several plants,one plant, located in St falls, minnesota, uses a job order costingsystem for its batch production processes. The st. falls plant hastwo departments through which most jobs pass. plantwide overhead,which includes the plant managers salary, accounting personnal,cafeteria, and human services, is budgeted at $ 200,000. during thepast year, actual plantwide overhead was 190,000. Each departmentsoverhead consists primarily of depreciation and othermachine-related expenses. Selected budgeted and actual data fromthe st. falls plant for the past year are as follows

Budgeted department overhead

(excludes plant wideoverhead)...............................DepartmentA....100,000.......Department B.....500,000

Direct laborhours.........................................................50,000......................................10,000

Machinehours...............................................................10,000......................................50,000

Actual activity

Direct laborhours.........................................................51,000.......................................9.000

Machinehours...............................................................10,500........................................52,000

For the coming year, the accountants at st. falls are in theprocess of helping the sales force create bids for several jobs.Projected data pertaining to job no. 110 are as follows

Directmaterials.......................................................20,000

Direct labor cost:

Department A.( 2,000HR).....................................30,000

department B ( 500hr)............................................ 6,000

Machine hours projected:

Department A........................................................... 100

DepartmentB............................................................1,200

Unitsproduced..........................................................10,000

Instructions round overhead rate and unit costs to 2 decimalplaces and round other cost calculations to the nearest dollar.

A) Assume the st. falls plant uses a single plantwide overheadrate to assign all over head( plantwide and department) costs tojobs. use expected direct labor hours to compute the overhead rate.find the overhead rate and determine the projected amount of totalmanufacturing costs per unit in job no. 110.

B) recalculate the projected manufacturing costs for job no. 110using three separate rates: one rate for plantwide overhead and twoseparate department overhead rates, all based on machine-hours.

C) The sales policy at st. falls dictates that job bids becalculated by adding 30 percent to total manaufacturing costs. whatwould be the bid for job no. 110 using 1) the overhead rate frompart A and 2) the overhead rate from part B? explain why the bidsdiffer. which of the over head allocation methods would yourecommend and why?

D) using allocation rates in part B, compare the under-or overapplied overhead for the st. falls plant for the year. explain theimpact on net income of assigning the under- overapplied overheadto cost of goods sold rather than prorating the amount betweeninventories and cost of goods sold.

E) A st. falls subcontractor has offered to produce the partsfor job 110. for a price of $ 8 per unit. Assume the st. fallssales force has already committed to the bid price based on thecalculations in part B. should st. falls buy the 8 per unit partfrom the subcontractor or continue to make the parts for job no.110 itself.

F) would your response to part e change if the st. falls plantcould use the facilities necessary to produce parts for job no. 110for another job that could earn incremental profit of $ 15,000

G) if the subcontractor mentioned in part e is located inmexico, what additional international environmental issues, otherthan price, will gilster and st. falls management need toevaluate.

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HSA 4180 Chapter Notes - Chapter 8: Profit Sharing

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