Part 1. Accounting for the Cost of Software Programs at AdCom Games, questions A-C:
A product costing system for Adventurous Computer Games, Inc. (AdCom) should take into account all the costs that are associated with each different game. This will ensure that all costs, both variable product costs as well as fixed costs are being covered. Beginning with the project team costs was a simple allocation, as these costs were already divided between the three different games. Next, the costs from the product development center needed to be allocated to each game; however, they did not keep track of these costs per product. The information that was provided gave some detailed information ...view middle of the document...
I took the total other costs and divided them by the total number of hours to find a per hour costs of $22.55. I then was able to allocate all the other costs to each product. I used this activity to allocate these costs because it was a universal measure that was consistent between the three products, and it also gave an accurate measure of the amount of work spent on each product. This would allow more of the other costs to be allocated to the games where more focus and attention had been given during the year. Then in the years where a game requires only marketing and being sold then the allocation of these costs will reflect this more accurately. My work for these numbers and my allocation method can be located in Exhibit No.1.
According to the product cost method that I used the total estimated product costs for this last year for Secret Agent is $4.95, for Wild West is $10.84 and for World Search is $13.82. These per game cost include all costs being allocated to the products.
In order to better report costs and make it easier to identify product specific costs I would recommend better record keeping. In one specific location I would suggest that selling costs be tracked in order to determine the specific costs associated with selling each game. I feel that hours would be a good base for this cost allocation. I think that if sellers would be able to track the hours that they spent marketing and selling for each different product then these costs will be more accurately allocated at year end. Another change that could help would be to have the product development support center track more information, I think that implementing some kind of computer tracking would be a quick easy solution. For example when the employee signs in there could be an opportunity for them to put in a product number and have the computer automatically track hours worked on that product, they would just log out when done working on that specific product and sign in again when working on another project. Something like this would be very easy to implement and would help when allocating costs to each specific product because hours spent on each product would be available to allocate those costs.
Part 2. Estimating what the Final Financial Reports for AdCom Games for 2003 will Show questions D-G:
Product development costs are made up of five basic activities, technological feasibility, detailed program design, coding, testing, and documentation and instructions. According to the Statement of Financial Accounting Standards (FAS) No. 86, with regards to research and development costs of computer software “All costs incurred to establish the technological feasibility of a computer software product to be sold, leased, or otherwise marketed are research and development costs. Those costs shall be charged to expense when incurred as required by FASB Statement No. 2, Accounting for Research and Development Costs.” For AdCom these costs are...