Implementation of Activity-based costing (ABC) The case of a Juice Company John Orland, controller of the Juice Company, has been concerned over the erosion of the recent financial results especially for the standard flavors (A and B) which used to earn a hefty 20 per cent of profit margin.

Recently, Dan Brun, the sales manager has expanded the lines of products to encompass new flavors (B & C) which were in high demand by customers who were willing to pay 5 to 10 % premium.

Richard Dunn, the manufacturing manager, was also excited to introduce the new flavors since they were expected to generate higher margins while using the same technology as standard flavors. However, he noticed that the introduction of new flavors added some technical complexities to the production process. For instance, unlike Flavors A & B, which were produced in huge volume and in long production runs, difficulties started to arise with the new flavors which were produced in smaller batches but required more changeovers and more production runs (see Exhibit 3).

The Juice Company produced the different flavors in the same factory. Each flavor had a bill of materials that determines the quantity and cost of direct materials used for the production of each flavor. Additionally, a cost sheet was used to track the direct labor expenses incurred at each operating step for each of the four flavors. All overhead costs were grouped at the plant level and allocated to each flavor on the basis of direct labor cost. The rate was set at 400 % of direct labor costs (see Exhibit 2).

John was intrigued by the behavior of their main competitors who were more interested in competing in, what appears according to the company’s current costing system, to be low profit margin flavors (A and B) than in high profit margins (Flavors C &D). Such behavior has led the controller to question the accuracy of that costing system and to conclude that the current method of allocation of indirect costs is distorting their product costs thereby causing inappropriate pricing.

To remedy the distortions caused by the traditional method of costing based on one single cost pool of indirect costs, John decided to implement Activity-based costing (ABC) method which focuses on the activities, how they are performed, and the resources they consumed and to assign activities costs to products based on how much demand each of these products puts on these activities. After careful analysis of the company’s operations, the controller identified four main activities: process production run, set up equipment, manage products, and run machines. The demand on these activities by different flavors is illustrated in Exhibit 3.

He began by identifying the resources that were being consumed by activities. These resources were grouped in six categories as shown in Exhibit 1. 2

After interviewing the department heads in charge of support staff wages and benefits and insurance, he found out that their services are used by three activities: process production run (40%), set up (40%), and the remaining 20 % consumed to manage products.

Next, the controller tackled the information system item and determines, after interview with the head of the information system department, that process production runs accounts for 30 % of their services while 70 % are used to manage products.

The results of his investigations about the usage of the equipment revealed that it was entirely used to run machines. Maintenance services were shared equally between the production run activity and run machine activity. Finally, utility was shared equally by the four activities.

Questions

1. Describe the problem the company is facing

. Calculate the costs for the four favors using ABC

3. Explain why, in this case, the ABC costs are different from those calculated under the traditional method based one single cost pool of indirect costs and provide examples from the case that support your analysis.

4. What would you do as a manager?

Exhibit 1

Exhibit 1 Resources Used Costs of Resources

Support staff wages $ 30,000

Benefits and insurances 12,000

Information Systems 10,000

Equipment 7,000

Maintenance 4,000

Utilities 3,000

Total $ 66,000

Exhibit 2:

Traditional Income Statement

Flavor A Flavor B Flavor C Flavor D Total

Sales $ 86,000.00 $ 52,000 $ 16,000 $ 3,600 $157,600.00

Direct Material costs 28000 20000 5500 400 53900

Direct labor costs 9500 5000 1500 500 16500

Overhead costs at 400%

of Direct labor costs 38000 20000 6000 2000 66000

Operating Income $10,500.00 $7,000.00 $ 3,000.00 $ 700.00 $ 21,200.00

Profit margin 12% 13% 19% 19% 13%

Exibit 3: direct costs and and activity cost drivers

Flavor A Flavor B Flavor C Flavor D Total

Sales in units 60,000 50,000 10,000 2,000 122,000

Sales in Dlollars $ 86,000.00 $ 52,000 $ 16,000 $ 3,600 $ 157,600.00

Unit selling price $ 1.43 $ 1.04 $ 1.60 $ 1.80

Machine hours per unit 0.1    0.1 0.1 0.1 12200

Production runs 50 50 38 12 150

Set up times ( hours) 150 120 200 100 570

Manage products 1 1 1 1 4

Liesel Inc. is considering the following two separate leases. Each lease pertains to the lease of equipment with a fair value of $100,000.

Liesel Inc.’s incremental borrowing rate is 7% and is not aware of the implicit rate of either lease. For Lease One, the lessee estimates an expected residual value of only $12,000 of the equipment at lease-end based on its expected usage.

How would Liesel Inc. classify Lease One and Lease Two?

Lease One             Lease Two       

Question 3 options:

Studies are often done by pharmaceutical companies to determine the effectiveness of a treatment program. Suppose that a new AIDS antibody drug is currently under study. It is given to patients once the AIDS symptoms have revealed themselves. Of interest is the average (mean) length of time in months patients live once starting the treatment. Two researchers each follow a different set of 40 AIDS patients from the start of treatment until their deaths. The following data (in months) are collected.

Researcher A: 3; 4; 11; 15; 16; 17; 22; 44; 37; 16; 14; 24; 25; 15; 26; 27; 33; 29; 35; 44; 13; 21; 22; 10; 12; 8; 40; 32; 26; 27; 31; 34; 29; 17; 8; 24; 18; 47; 33; 34

Researcher B: 3; 14; 11; 5; 16; 17; 28; 41; 31; 18; 14; 14; 26; 25; 21; 22; 31; 2; 35; 44; 23; 21; 21; 16; 12; 18; 41; 22; 16; 25; 33; 34; 29; 13; 18; 24; 23; 42; 33; 29

Complete the tables using the data provided. (Enter exact numbers as integers, fractions, or decimals.)

Researcher A

Researcher B

Studies are often done by pharmaceutical companies to determine the effectiveness of a treatment program. Suppose that a new AIDS antibody drug is currently under study. It is given to patients once the AIDS symptoms have revealed themselves. Of interest is the average (mean) length of time in months patients live once starting the treatment. Two researchers each follow a different set of 40 AIDS patients from the start of treatment until their deaths. The following data (in months) are collected.

Researcher A: 3; 4; 11; 15; 16; 17; 22; 44; 37; 16; 14; 24; 25; 15; 26; 27; 33; 29; 35; 44; 13; 21; 22; 10; 12; 8; 40; 32; 26; 27; 31; 34; 29; 17; 8; 24; 18; 47; 33; 34

Researcher B: 3; 14; 11; 5; 16; 17; 28; 41; 31; 18; 14; 14; 26; 25; 21; 22; 31; 2; 35; 44; 23; 21; 21; 16; 12; 18; 41; 22; 16; 25; 33; 34; 29; 13; 18; 24; 23; 42; 33; 29

Complete the tables using the data provided. (Enter exact numbers as integers, fractions, or decimals.)

Researcher A

Researcher B

Use R studio.

Bacteria in water are counted as colony-forming units (CFU’s) per milliliter.  Ten bottles of water are randomly selected for sampling, with the intention of testing if two different labs produce the same results. Each bottle is divided into two parts, and then given to each of the two labs:

1. Are the ten observations from lab 1 independent of those from lab 2? Why or why not?

Test the hypothesis that the average value from lab 1 higher than that of lab two (a = 0.05). Hint: you can read the data in as vectors, e.g.:

lab1 = c(875,959,475,589,925,1100,971,450,892,728)

2. What are the null and alternative hypotheses?
3. What is the test statistic and its p-value?
4. What decision and conclusion should you make?

Given these sales figures over the last 7 weeks, your boss needs you to test two different forecasting methods (parts a and b below) to determine which method is best. For your measure of “best”, recommend to your boss that the company should use the method with the lowest mean absolute deviation (MAD). Then use that method to provide your forecast for week 8 in part c.

Week                        Unit Sold

1                                 9,040

2                                 11,150

3 9,420

4                                 10,310

5                                 11,950

6                                 13,050

7                                 12,470

Calculate the MAD for the 4 period moving average forecasting technique.

Calculate the MAD for the 2 period weighted moving average forecasting technique. Use weights of 0.6 and 0.4, with the most recent observation weighted higher .

How many units would you forecast will be sold in week 8?

Assuming Case 1 (equal population standard deviations), calculate the test statistic for the hypothesis test. Examine the difference in the mean age of houses (two-tailed test):

Peaceful Pines

40, 47, 42, 44, 40, 43

Whispering Willows

49, 45, 35, 37, 51, 39

I tried computing this via data analysis on excel, but my result was 0. The two means are the same, and therefore I am not sure what that means? Also can you show me what you input on Excel data analysis once you compute t-test equal variances? (what is the hypothesized difference).

A 2^4-1  experiment was performed to improve the yield of a chemical process. Four factors were selected, and two replicates were run. Due to raw materials constraints, it was possible to run only 8 runs. Thus, the design generator D = ABC was selected. The data are shown in the following table. Create the standard order fractional factorial design in Minitab. Analyze the fractional factorial design and, following the principle of hierarchical order, remove all interaction terms then main effects that are not statistically significant at p = 0.05. Analyze the reduced factorial design and output a normal probability plot, fitted values plot, and plots of the residuals versus each factor. State the final model and comment on its adequacy based on its R-square values and residuals analyses. What settings of the final model predictors maximize yield?

Q2. Suppose you are investigating the factors that affect college GPA. You perform a survey, and the data are contained in the Excel data file GPA_Survey.xlsx and then regress GPA on hours studied, work, video game, texts, and male.

1) Suppose you think that you have omitted an important variable, ability, which is correlated with many of your independent variables. What are the consequences of this omission on the coefficient estimates and hypothesis tests?

2) Perform the same regression that you did in part 1), but then add the additional variable, eye color. What are the consequences of including this irrelevant variable on your coefficient estimates and hypothesis tests?

3) Would you rather omit a relevant variable such as ability or include an irrelevant variable such as eye color? Explain your reasoning.

1. What is one of the most powerful features of SQL?

Operators

Functions

Table Joins

2. A JOIN is a mechanism used to associate tables within a SELECT statement?

True

False

3. A JOIN can modify existing database tables

True

False

None of the above

4. The WHERE clause acts as a filter to only include rows that match the filter condition.

True

False

5. The more tables you JOIN the less resources the system uses.

True

False

6. The most commonly used JOIN is the INNER JOIN

True

False

7.Excluding the INNER JOIN, which of the following is not one of the three additional types of table JOINS

SELF JOIN

NATURAL JOIN

8. What OPERATOR is used to combine queries

FROM

UNION

EXCLUDE

9. When combining queries, how many ORDER BY clauses does the UNION operator use?

1

Can vary based on the number of queries being combined.

0

10. What two scenarios call for using combined queries. (Select two answers)

To return similarly structured data from different tables.

To perform multiple queries against a single table returning the data using one query.

To return data that creates new columns that don’t exist across the tables in the query.

To return data and find the intersection of the data across tables in the query.