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About this document
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- 3 pages
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- $3 one-time, yours to keep
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- Format
- Subject
- Accounting, Business
- Module
- Chapter 17
This case study looks at Ideal Manufacturing Company’s decision to sell its R&D services to outside customers. It covers the four pools of R&D costs, activity-based overhead cost rates, and pricing for both in-house and outside bids. It is useful for understanding activity-based costing and its benefits.
What's inside
- Ideal Manufacturing Company's background
- Four pools of R&D costs
- Activity-based overhead cost rates
- Pricing for in-house and outside bids
- Benefits of activity-based costing
Who it is for: Students taking the ACC 561 course. (Postgraduate)
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Summary
Ideal Manufacturing Company is considering selling its R&D services to outside firms. Students learn about activity-based costing for pricing these services.
R&D Cost Pools
Costs in the research and development department are divided into four areas. These are market analysis, product design, product development and prototype testing.
Cost Rates for Activities
Activity-based overhead cost rates are calculated for each of the four areas. These cost rates show how much it costs the company to provide these services.
Pricing for Outside Services
Example pricing is calculated for an outside firm that wants to use the R&D services. A different example shows the pricing for an in-house department.
Key terms
- Activity-based costing
- A method for allocating costs based on the activities that cause them.
- Cost rate
- The cost per unit of an activity's driver. For example, cost per engineering test.
- Cost pools
- Groups of costs that are related to a certain activity, like product development.
- Pricing
- The amount that Ideal Manufacturing Company would charge for providing its services.
- R&D
- Research and development, the department that creates new farm machinery products.
Questions this document helps with
- What cost pools does the R&D department have?
- How would Ideal Manufacturing Company price its services?
- How can Ideal Manufacturing Company use activity-based costing?
Summary written with AI from the document's text.
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