Makeup Case #1-G.G. Toys
1. Do you recommend that G.G. Toys change its existing cost system in the Chicago plant? The Springfield plant? Why or Why not?
a. G.G. toys should change the current cost system in Chicago. Currently the cost system is production-run direct material and direct labor, which seems to not be as effective as it was initially thought to be. The overhead costs in the Chicago plant were allocated to Geoffrey dolls and specialty-branded dolls as a percentage of production-run direct labor cost. This is the main issue. That is why it would be ideal for the Chicago plant to utilize the Activity-Based Costing system. Overhead costs are high especially with multiple machines running simultaneously. This also includes the setup for the modifications of dolls as well (switching from boy to girl doll). Production run and packaging all required the same amount of time and work regardless of production length and number of items in the shipment. If the Chicago plant switched to the activity-based cost system, G.G. Toys can use a method of assigning costs to products or services based on the resources that the plant consumes. Rather than waste materials and resources. The business’ overheads are allocated in proportion with activity based on the number of events or transactions involved in the process of providing a product or service. In this case it would be the product, Geoffrey doll.
b. I do not think that the Springfield plant should change its current cost system. The plant is also using the production-run direct labor cost to allocate its overhead costs. However, because the plant produces one product with no customization, with materials purchased from local manufacturers all made by hand (little overhead cost-Exhibit 2) this cost system is effective and should not be changed.
2. Calculate the cost of a Geoffrey doll, the specialty-branded doll #106, and a cradle using the cost study conclusions.
The cost of a...