Breeden Security Inc. (A) Harvard Case Solution & Analysis

Question 3

Prepare a revised 2008 monthly budget using the revised product costs.

Answer 3

The budget is shown in the excel sheet with re-assure the cost per unit under activity based costing method which is better for the development of the organization.  The budget is annexed in the excel sheet and in the appendix C. Conferring to the consumption rates attributed to supplies cost RC1 is extra from RC2. The flat rate is castoff in the previous monthly budget that was not calculated correctly at the rate of each product spent supplies.  Under the ABC, it depict the actual cost picture which compare to the case exhibit 1. RC1 is more profitable as compare to the RC2

Question 4

Complete her cost sheets for the “two factory” approach, Exhibit 5, by separating the order-driven costs from Table 2 and by using actual, rather than budgeted, sales volumes. Why did the product costs change again?

Answer 4

The next problem is the analysis comparison “Two ,Factory cost and ABC” that cannot be made with actual volume because the data is prepared from the budgeted data. In order to do this with the help of Exhibit 5 that the per-unit product cost driver on orders must be figured for both RC1 and RC2 products.  The table which is shown in Appendices and the excel sheet are the actual cost driven by the orders of the company.

This excel table which are shown in the Appendix D provides the comparison of ABC and Two Factory Techniques Method. When observing the figures one can straightly identify that product cost changes between both methods. Entire manufacturing cost is inferior for packing and shipping overhead and common operations for this reason that they eliminated the $98000from table two.

Moreover, she decided to include the additional expenditures of orders for handling, which marks the cost for orders $400 per order. As soon as it is divided with the actual units by product the cost is added to entire manufacturing cost.

This is the reasons that the first modification between the methods arises because ABC does not include additional expenses, in the meantime they were not measured at the start of the year. The second modification comes from selling and administrative cost.

ABC get this figure by multiplying the monthly approximation 12 times which is 480,000. While, Two Factory technique displays that the actual cost was inferior which have similarly pushed the total unit cost toward the downside. ABC used budgeted figures of unit while two-factory uses the actual unit which is the main difference. The comparison is not showing the feasibility between them.

Question 5

Compute RC2 breakeven (units/order) given that processing an order costs $400 no matter how many units were ordered. What is the break-even number of units necessary to cover the order costs?

 

Answer 5

After calculating the all extra cost which comes under the RC2 units, then she calculated the breakeven in units with covering the order cost which is determine as fixed cost of the company. The breakeven is calculated in the excel sheet which is also mentioned in the Appendix E. the breakeven of the RC2 is 14545 in units.

The company has to sell these units to come at the breakeven point. It depends on the organization whether they move on it or not. The financial health shows that the company could sell the units higher than the breakeven units.

Question 6

Figure out how 2009 could be more profitable than 2008.

Answer 6

At the time of preparation for the succeeding year and build a new budget for 2009 the Activity Based Costing method can be supportive. The instruction is to check the integrity of the ABC system; she needs to know the assistance that is provided from this method and in what ways it can be castoff to make more profitable judgments.  The ABC delivers a better way for the comprehensive understanding with respect to the product cost.

ABC shows packing and shipping for RC2 were much more costly than for RC1 product. The main aim for this event is that RC2 has a greater amount of customers and their respective orders, which comprises more packaging and shipment customization.

In order to be moving on and becoming profitable for the upcoming years, organization should change revenue prices conditional on the packaging requisite. If these consequences are too complicated then the organization can apportion an index of exertion for each order which would offer changes as been a changer for orders..................................

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