Teaching notes 2
CASES
HC 1: GEEN
HC 2: REGIONFLY
HC 3: MIDWEST OFFICE SUPPLIES
HC 4: BERENDSEN ISLAND
HC 5: HYDROGEN CYANIDE
HC 6: COMTEL
HC 7: COMPAGNIE DU FROID
HC 8: GEEN
HC 9: CITIBANK
HC 10: WELLS FAGRO
HC 11: ATH TECHNOLOGY
,HC 2: REGIONFLY
CASE QUESTIONS
1. Calculate the overhead allocation rate per variable direct cost dollar (VDC) for each of the years
(2011, 2012, 2013, and 2014?
2. Are the route costs reported by the cost system appropriate for use in the current
strategicanalysis? Your judgment should be informed by a classification of the costs listed in
Exhibit 2 asvariable or fixed
3. What happened to the costs when Route 2 and Route 4 were dropped? What is likely to happen
ifRoute 7 is dropped as well?
4. Assume that revenues and variable direct costs for each route in 2015 will be the same as
theywere in 2014. Also assume that if Route 7 is kept, revenues and variable direct costs will
notchange either. With this information:
a) Prepare an estimate of the budget for 2015, with respect to the following scenarios:
a. No additional routes are dropped
b. Route 7 is dropped in 2015
b) What assumptions did you make to prepare this estimation?
c) What will be the overhead rate in each of the above scenarios?
5. Would you drop Route 7 in 2015? Why or why not? What additional information would
yourequire before making a final decision?
, HC 3: MIDWEST OFFICE PRODUCTS
CASE QUESTIONS
1. Based on the information provided in the case, estimate:
a. The cost of processing cartons through the facility
b. The cost of entering electronic and manual customer orders
c. The cost of shipping cartons on commercial carriers
d. The cost per hour for desktop deliveries
2. Using the cost driver information estimated in Q1, calculate the cost and profitability of the five
orders in Exhibit 2. Compare these costs and portability to those calculated by Midwest’s existing costing
system.
3. Explain the difference in profitability of the five orders calculated by the ABC system and the
company’s existing system.
4. Based on your analysis above, what actions should John Malone take to improve Midwest’s
profitability?
5. What issues, barriers, or concerns arise in your organization for building an ABC model that
calculates the cost and profitability of products and services?
CASES
HC 1: GEEN
HC 2: REGIONFLY
HC 3: MIDWEST OFFICE SUPPLIES
HC 4: BERENDSEN ISLAND
HC 5: HYDROGEN CYANIDE
HC 6: COMTEL
HC 7: COMPAGNIE DU FROID
HC 8: GEEN
HC 9: CITIBANK
HC 10: WELLS FAGRO
HC 11: ATH TECHNOLOGY
,HC 2: REGIONFLY
CASE QUESTIONS
1. Calculate the overhead allocation rate per variable direct cost dollar (VDC) for each of the years
(2011, 2012, 2013, and 2014?
2. Are the route costs reported by the cost system appropriate for use in the current
strategicanalysis? Your judgment should be informed by a classification of the costs listed in
Exhibit 2 asvariable or fixed
3. What happened to the costs when Route 2 and Route 4 were dropped? What is likely to happen
ifRoute 7 is dropped as well?
4. Assume that revenues and variable direct costs for each route in 2015 will be the same as
theywere in 2014. Also assume that if Route 7 is kept, revenues and variable direct costs will
notchange either. With this information:
a) Prepare an estimate of the budget for 2015, with respect to the following scenarios:
a. No additional routes are dropped
b. Route 7 is dropped in 2015
b) What assumptions did you make to prepare this estimation?
c) What will be the overhead rate in each of the above scenarios?
5. Would you drop Route 7 in 2015? Why or why not? What additional information would
yourequire before making a final decision?
, HC 3: MIDWEST OFFICE PRODUCTS
CASE QUESTIONS
1. Based on the information provided in the case, estimate:
a. The cost of processing cartons through the facility
b. The cost of entering electronic and manual customer orders
c. The cost of shipping cartons on commercial carriers
d. The cost per hour for desktop deliveries
2. Using the cost driver information estimated in Q1, calculate the cost and profitability of the five
orders in Exhibit 2. Compare these costs and portability to those calculated by Midwest’s existing costing
system.
3. Explain the difference in profitability of the five orders calculated by the ABC system and the
company’s existing system.
4. Based on your analysis above, what actions should John Malone take to improve Midwest’s
profitability?
5. What issues, barriers, or concerns arise in your organization for building an ABC model that
calculates the cost and profitability of products and services?
