An business, freely exchanged biotech company has began production and customers of the core product--tubes which allow DNA samples being examined around the microchip. At the beginning of quarters, sales are hard to forecast and also the organization has experienced altering production volumes and unpredictable gross margins, which has upset the board of company company directors. The finance staff checks if you should adopt a completely new costing approach based on capacity. With huge amounts of unused capacity, the option of techniques to make use of capacity costs is vital for the company's management which is verifying strategy with experts.
Overhead Allocation Calculations
Table B Anagene, Inc. Cartridge Financials ($, except for volume and gross profit %)
Income Statement for Anagene Inc
1. Describe Anagene’s competitive environment, including its industry, its specific customer base, its product / customer heterogeneity, and the major concerns facing Anagene.*
2. Considering your answer to item 1, is it likely that the existing cost system may adversely and significantly affect decisions to emphasize certain products or affect profit? Why (a general answer is expected)?*
3. Using the Excel format on my.asu, complete the exercise for Youngstown. What “lessons” can be taken from this exercise? Do the “lessons” relate to Anagene? Give one example.*
4. What has caused the fluctuating margins for Anagene’s cartridges?
5. Should Kelly even be concerned with the assignment of overhead costs to cartridges and gross margins that include allocated overhead? Why not use variable contribution margin (selling price less variable costs, primarily materials) for management decision-making and reporting?
6. Refer to items 3 and items 4, what role does practical capacity, expected production, and actual production play in formulating an approach for assigning overhead? How are these matters useful to managers? Draw on text and readings for your answer.
7. What approach do you recommend that Daniel Yeltin adopt? Explain. For your recommended approach, what will be the cartridge product costs and margins?
8. Suppose sales in 2001 equal 26,000 unit, as in the budget constructed in January, and that actual manufacturing expenses turn out to equal budgeted expense. Prepare an income statement for the year (just include the manufacturing expense for expense) that will help senior management and the board understand the economics of cartridge production in 2001.