. Explain the principles of psychopharmacology as specifically discussed in your course text? Why is it important for those in the field of psychology to be familiar with these principles? (must use attached chapters)
September 19, 2019
What research question could you ask in order to further develop this area of study?
September 19, 2019

In your readings this module, you were introduced to Activity-Based Costing or ABC. It is a method used to determine a reliable predetermined benchmark for the allocation of overhead costs to the products produced based on their activity levels.

Tasks:

  • Examine the case below and then…
    • Calculate the amount of overhead allocated to small and large advertising campaigns under existing methods.
    • Apply activity-based costing to calculate the cost per cost driver for each of the cost pools.
    • Use the costs per cost driver to calculate the activity-based overhead applicable to small and large campaigns.
    • Calculate the percentage to be added to direct advertising costs to recover overhead costs under activity-based costing.

Merit-o-cracy PLC is a specialist advertising agency. It has been long-established but is experiencing difficulties in winning new business. The Chief Executive believes that its pricing methods are leading to the loss of large customer advertising campaigns while it is consistently winning smaller business.

Merit-o-cracy costs work for pricing purposes on the basis of direct advertising costs (i.e. space or time purchased from newspapers, radio and TV) plus 100%. The 100% is intended to cover all the overheads of the business, which run at $2 million per year. It does not include any profit margin. This budget cost comprises:

Creative staff                                        $500,000

Production staff                                    $750,000

Administrative & support staff              $300,000

Rental and associated costs                  $450,000

Merit-o-cracy classifies its advertising campaigns as either small or large. Of the 350 campaigns the agency wins, about 325 are classified as small. A typical small advertising campaign incurs direct advertising costs of $4,000 each (and therefore is allocated $4,000 of overheads under current methods). The other 25 advertising campaigns are large and incur direct advertising costs of $28,000 each.

Merit-o-cracy’s accountant has heard of activity-based costing. After speaking to the management team, she has gathered information on the most common causes of costs. She believes that creative staff costs are linked to the number of advertising campaigns the agency competes for. Production staff costs are related to the number of advertising campaigns the agency wins. Administrative and support staff costs are related to the number of customers the agency has. Rental and associated costs are people-based and as a similar number of staff is employed in each of the three departments, the costs should be equally shared.

 

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Apply activity-based costing to calculate the cost per cost driver for each of the cost pools. was first posted on September 19, 2019 at 9:59 am.
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