ANagene Case study
Ans 1) Anagene allocated overhead costs to standard product costs using a budgeted/forecasted volume. But the volume of cartridges sold kept fluctuating each month but Anagene did not change the budgeted rate based upon the volume sold. As a result, overhead costs allocated to each cartridge increased each month when volume sold was less than the forecasted volume. This caused the fluctuating margins for the cartridges.
Ans 2) Overhead costs ...view middle of the document...
Only labor and material cannot produce a product, management hours and several other indirect costs have to be incurred in order to produce a unit of product. Therefore , I don’t think Kelly should be concerned with assignment of overhead costs and gross margin to allocated overhead as long as the projected volume equals sales volume. But since in the case this is not true, therefore Kelly should be concerned with what types of drivers are being used for allocation to get a better estimate of actual product cost including allocated overhead costs. If Kelly uses only Variable contribution for management decisions, she will miss a big component of fixed and overhead allocation that also needs to be absorbed as part of the product cost. Lets say that the variable contribution margin shows constant but in the financial statements the overhead and fixed costs will show up as expenses which again need to be accounted for. Therefore overall there wont be any gains and it will not give the management a true picture of how much does it actually take to produce a unit of the product.
Ans 3) Daniel Yeltin should adopt the practical capacity approach. This will help him correctly identify the true capacity utilization of the process and provide a better estimate made of the product costs.