Shipping, however, is different. There are two activities associated with shipping: picking the order from inventory and loading the paper. We employ 30 people for picking and 10 for loading, at an annual cost of $1 900 000. Other shipping costs total $1 700 000. Picking and loading are more concerned with the number of shipping items than with tonnage. That is, a shipping item may consist of two or three cartons instead of pallets. Accordingly, the shipping costs of the distribution centre should be assigned by using the number of items shipped. In 2016, for?example, we handled 150 000 shipping items.
GRACE: These suggestions have merit. Debbie, I would like to see what effect Sadias?suggestions have on the per-unit assignment of shipping and warehousing for FK. If the effect?is significant, then we will expand the analysis to include all products.
DEBBIE: OK, I will compute the effect.
GRACE: Great, thank you.
To help in the analysis, Debbie gathered the following data for FK for 2016:
Tonnes sold 30
Average cartons per shipment 2
Average shipments per tonne 21
1. Identify the flaws associated with the current method of assigning shipping and warehousing costs to Tigers products.
2. Compute the shipping and warehousing cost per tonne of FK sold by using the new method suggested by Sadia and Debbie.
3. Using the new costs computed in requirement 2, compute the profit per tonne of FK. Compare?this with the profit per tonne computed by using the old method. Do you think that this same effect would be realised for other low-volume products? Explain.
4. Comment on Graces proposal to drop some high-volume products and place more emphasis on low-?volume products. Discuss the role of the accounting system in supporting this type of decision making. Support your discussion referring to relevant literature (academic and professional).
5. After receiving the analysis of FK, Grace decided to expand the analysis to all products. She also?had Debbie reevaluate the way in which mill overhead was assigned to products. After the?restructuring was completed, Grace took the following actions: (a) the prices of most low-volume?products were increased, (b) the prices of several high-volume products were decreased, and (c) some low-volume products were dropped. Explain why her strategy changed so dramatically.
6. Discuss the benefits and limitations of ABC. Which companies/industries would derive a benefit from ABC? And which companies/industries would not derive a benefit from ABC? Your answer has to be supported by relevant academic and professional literature.
Please note: The marking rubrics for the written report and the presentation are provided in a separate document.