Pilgrims Manufacturing, Inc.: Activity-Based Costing versus Volume-Based Costing

A case is presented about the allocation of support costs to products in a manufacturing company, Pilgrims Manufacturing Inc, that has two plants - a labor-intensive machine shop and an automated-machine-intensive plant. It works through several examples of two cost centers using volume-based alloca...

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Bibliographic Details
Published inIssues in accounting education Vol. 19; no. 4; pp. 539 - 553
Main Authors Hussein, Mohamed E. A., Tam, Kinsun
Format Journal Article
LanguageEnglish
Published Sarasota American Accounting Association 01.11.2004
Subjects
Accounting procedures
Activity based costing
Costs
Manufacturers
Manufacturing
Studies
United States > US
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Summary:A case is presented about the allocation of support costs to products in a manufacturing company, Pilgrims Manufacturing Inc, that has two plants - a labor-intensive machine shop and an automated-machine-intensive plant. It works through several examples of two cost centers using volume-based allocations and ends with an activity-based cost (ABC) system that has six activity cost pools plus a combination of volume-based and transaction-based cost drivers. The case should help students grasp the conceptual and computational differences between traditional volume-based systems and ABC systems and recognize the fact that significant portions of support costs in multiproduct organizations are not volume-based. It starts with the distribution of expenses to activity cost pools through the allocation of cost to products, and it includes both manufacturing and nonmanufacturing costs.
ISSN:0739-3172
1558-7983
DOI:10.2308/iace.2004.19.4.539