Problem 1 – Aunt Ethel’s Fancy Cookie Company manufactures and sells three flavors of cookies: macaroon, sugar, and buttercream.  The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by the company.  Based on budgetary projections, the information listed below is available:

                                                                      Buttercream                      Macaroon                    Sugar

Projected sales in units                      500,000                            800,000                      600,000

PER UNIT data:

Selling price                                         $0.80                                $0.75                         $0.60

Direct materials                                    $0.20                                $0.15                         $0.14

Direct labor                                          $0.04                                $0.02                         $0.02

Hours per 1,000-unit batch:

Direct labor hours                      2                              1                     1

Oven hours                               1                              1                     1

Packaging hours                     0.5                           0.5                   0.5

Total overhead costs and activity levels for the year are estimated as follows:

        Activity                          Overhead costs                                    Activity levels

        Direct labor                                                                                                                       2,400 hours

           Oven                                                  $120,000                                                              1,900 hours

           Packaging                                          $150,000                                                               950 hours

            Total                                                   $270,000

Questions:

1. Determine the activity-cost-driver rate for packaging costs (three points).
2. Using the ABC system, for the sugar cookie, compute the estimated overhead costs per 1,000 cookies (three points).
3. Using the ABC system, for the sugar cookie, compute the estimated operating profit per 1,000 cookies (three points).
4. Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated overhead costs per 1,000 cookies (three points).
5. Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated operating profit per 1,000 cookies (3 points).
6. Explain the difference between the profits obtained from the traditional system and the ABC system.  Which system provides a better estimate of profitability? Why? (three points).

Problem 2: What is activity-based management and how can it be used to improve the profitability of a company?  (12 points)

• New Business Realities

  Resources

  • Discussion Participation Scoring Guide.
  • GREAT Discussions and Feedback.
  • New Business Realities.

  The New Business Realities reading (in Unit 1 studies and also in the Resources) introduces a common theme of undergraduate learning at Capella University. As you read the descriptions of the five driving forces, take notice of the consistent and dramatic transition from things to people. To highlight this, examine the table with columns for the twentieth and twenty-first centuries. The twentieth century column focuses on mechanical things, such as production equipment, plants, buildings, and efficient, structured processes. The twenty-first century column emphasizes people: what they know, how they communicate, how they organize, and what they can dream and create. Each driving force moves from mechanical to organic. Using a business perspective, focus on how business professionals are affected by the New Business Realities.

  The New Business Realities document paints a picture of transformative change. Select two of the driving forces and consider your past experiences in the context of these changes. For the two driving forces that you select, write about the influence each has had on your professional life. For example, how has the practice of continuous change affected your management skills or interpersonal communication skills? This is meant to be an introduction to the driving forces not an exhaustive analysis. Use subheadings to indicate the exact title of the reality (from the first column of the reading) that you are discussing. Your main post should have two distinct sections, one for each of the driving forces you are discussing.

  As you complete this discussion, avoid performing research and using citations. Internet research is not needed because you are sharing your thoughts and experiences and not those of another author. To ensure your participation meets the expectations, refer to the GREAT Discussion and Feedback guidelines provided in the Resources.

  Post your initial discussion (main post) by Thursday to allow time for your peers to respond.

   

  1. System Dynamics – Transformative Change.
     New system dynamics are at work in the economy—everything is speeded up. Now change is faster, unrelenting, and more transformative than at any time in history. In addition, a new understanding of the process of change is emerging as the new sciences of chaos and complexity develop. Business and society need to be rethought in terms of rapid transformative change, using the new insights of the hidden order in the chaos of complex, adaptive, and dynamic systems.

  Planned Stability and Incrementalism

  System Dynamics of Continuous Change

   

  1. Net Communications – New Communities.
     Extensive networked communications in business and society are enabling new forms of community. Conversations in the new networked communication media of e-mail, chat, voice, and visual media are changing both the messages and the messengers in the newly formed communities and communications.

  Management Control and Mass Market Persuasion

  Enabling Networked Communities of Practice

   

  • The New Business Realities document paints a picture of transformative change. Select two of the driving forces and consider your past experiences in the context of these changes.
  •  For the two driving forces that you select, write about the influence each has had on your professional life. For example, how has the practice of continuous change affected your management skills or interpersonal communication skills? This is meant to be an introduction to the driving forces not an exhaustive analysis. Use subheadings to indicate the exact title of the reality (from the first column of the reading) that you are discussing. Your main post should have two distinct sections, one for each of the driving forces you are discussing.

   

  As you complete this discussion, avoid performing research and using citations. Internet research is not needed because you are sharing your thoughts and experiences and not those of another author. To ensure your participation meets the expectations, refer to the GREAT Discussion and Feedback guidelines provided in the Resources.