Sippican Case - Cost Allocation and Pricing of Products - Cost Accounting Assignment Help

Assignment Task:

Questions for the Sippican Case

1. What are the pitfalls for companies who do not allocate overhead costs to its products?  (See Knight’s comments on page 2 regarding his competition).  How can this influence pricing and profitability?  Why might a company do this and what other controls would they have to implement to insure optimal performance?
2. Based on Sippican’s current method for allocating overhead costs, See page 2 “overhead costs are allocated to products @ 185% of direct labor costs,” calculate the amount of total overhead costs allocated and applied to each product during the month of March?  Based on this allocation, was the amount of overhead under or over applied for the month?  Whether under/over applied, why do you think this was the case?  Provide some insight as to why direct labor cost may not be an optimal cost driver in allocating indirect costs?
3. Using the monthly production data in Exhibit 4, allocate the actual (5) overhead costs pools to each of the 3 Sippican products.  How does this revised allocation impact gross margin and targeted selling price for each product?  Comment on the cost benefit of Sippican moving away from a single cost driver allocation of indirect expenses to a multiple, what are the additional benefits and cost and how would you advise the company to proceed.
4. Take a look at the Apple article, what other indirect costs might be allocated to this product within Apple, and how do you think such costs should be allocated between the various Apple products, including the iPhone and the iPad.  How do you think Apple approaches cost allocation and pricing of products within each of its segments?

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