1.NBS, Inc. is a technology consulting firm focused on Website development and integration of Internet business applications. The president of the company expects to incur $719,600 of indirect costs this year, and she expects her firm to work 8,000 direct labor hours. NBS' systems consultants earn $350 per hour. Clients are billed at 150% of direct labor cost. Last month NBS' consultants spend 100 hours on Windstream's project.
a. Compute NBS' indirect cost allocation rate per direct labor hour.
b. Compute the total cost assignment to the Windstream project.
c. Compute operating income from the Windstream project.
2. Brannon Company manufactures ceiling fans and uses the activity-based costing system. Each ceiling fan consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce. Additional information:
Activity Allocation Base Cost Allocation Rate
Materials handling Number of parts $.08
Machining Machine hours $7.20
Assembling Number of parts $.35
Packaging Number of finished units $2.70
a. What is the cost of materials handling per ceiling fan?
b. What is the cost of machining per ceiling fan?
c. Compare and contrast the ABC costing to more traditional costing methods. What are the main benefits of ABC?
3. Explain, in your own words, what "Management by Exception" is and how it is used. (detailed info located in chapter lecture notes)
4. Explain how management uses "performance variances" to help run a profitable company.