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OVERVIEW This is a basic case in Activity-Based Costing ABC and Activity-Based Management ABM There is enough richness to the fact-situation to create a non-trivial calculational challenge for students without taking the case beyond an introductory level Also the business context for the calculations is rich enough to support good discussion on the managerial implications I use Tijuana Bronze as the introductory case on ABCABM in the required managerial accounting course at Tuck and at Babson The eight assignment questions force students to address the ABC calculations and the ABM managerial implications Answers to the assigned questions are shown below Question 1Product Costs per Unit - Current System Valves PumpsFlow Controllers Material160020002200 Direct Labor400800640 Overhead175635122810 439 of Direct Labor Standard unit cost375663125650 Overhead Machine depreciation270000 Set-up labor2688 Receiving20000 Materials handling200000 Engineering100000 Packing and shipping60000 Maintenance30000 Total overhead682688 Total run labor 9725 hours x 16 155600 Overhead rate 682688 155600 439 Question 2Estimated Contribution Margin for Products Valves PumpsFlow Controllers Revenue577881269707 Variable Costs--Material only160020002200 Contribution417861267507 or Assume Labor is Variable case says only direct material is short-run variable Run Labor400800640 Set-up Labor020548 402805688 Contribution377653216819 Question 3Revised Product Unit costs per More Modern View Valves PumpsFlow Controllers Material160020002200 Material Related Overhead 48 768 960 1056 Set-up Labor020548 Direct Labor400800640 Other Overhead 4259 per machine hr21302130852 Revised standard cost490058954796 Material Related Overhead Receiving 20000 Material Handling200000 Total220000 Overhead Allocation Rate on Materials Cost 220000 458000 48 of materials cost Other Overhead on Machine-Hour Basis Machines Depreciation270000 Engineering100000 Packing and Shipping60000 Maintenance30000 Total460000 Overhead Allocation Rate 460000 10800 hours 4259 per machine hour Question 4Products Costs Using Activity Based Costing Valves Pumps Flow Controllers Total Month Per UnitTotal 7500Per UnitTotal 12500Per
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