| Course | BUS 510 Managerial Accounting |
|---|---|
| Module | Module 5 |
| Paper type | Product costing analysis |
| Length | About 1,131 words, 7 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for BUS 510 Module 5
The Cart That Looked Like the Best Seller: Traditional and Activity-Based Costing at a Stainless Steel Cart Maker
Student Name
MBA Program, Aspen University
BUS 510: Managerial Accounting
Instructor Name
Month Day, Year
The Cart That Looked Like the Best Seller: Traditional and Activity-Based Costing at a Stainless Steel Cart Maker
Lakeside Fabrication, a composite manufacturer in Sheboygan, Wisconsin, builds stainless steel carts for restaurants, hotels and hospitals. It makes two kinds of products. Standard bussing carts are built in batches on a stable design, about 10,000 a year, and sell for $520. Custom hospital meal carts are built to each hospital's specifications, with heated compartments, special casters and locking doors, about 1,000 a year, and sell for $1,450. For three years, the sales team has pushed custom carts because the cost reports show them earning much higher margins. Yet overall profits have fallen as custom work has grown. This paper rebuilds the products' costs to find out why.
Job Order Costing at Lakeside
Because every custom cart is built to an order, Lakeside uses job order costing, accumulating direct materials and direct labor for each job and adding overhead at a predetermined rate. Standard carts are costed the same way in batches. Direct costs are traced reliably: a standard cart uses $210 of materials and three hours of labor at $32 an hour, or $96; a custom cart uses $640 of materials and six hours of labor, or $192. The question is how to assign the $1.8 million of manufacturing overhead, which includes setup crews, engineers, material handlers, machine maintenance and supervision.
The Traditional Allocation
Lakeside assigns overhead on direct labor hours. Standard carts use 30,000 labor hours a year and custom carts 6,000, for a total of 36,000. Dividing $1.8 million by 36,000 hours gives a rate of $50 per hour. A standard cart therefore receives $150 of overhead and a custom cart $300. Unit costs are $456 for the standard cart and $1,132 for the custom cart, implying margins of $64, or 12.3%, on the standard cart and $318, or 21.9%, on the custom cart.
Rebuilding Overhead by Activity
Cooper and Kaplan (1988) argued that traditional systems, which spread overhead on volume measures such as labor hours, systematically distort product costs. Products made in high volume on stable designs are charged for overhead caused by low-volume, complex products, while the complex products appear cheaper than they are. Activity-based costing corrects this by tracing overhead to the activities that cause it and then to the products that use those activities.
Supervisor interviews and a line-by-line pass through the overhead ledger produced four activity pools.
Custom carts use few labor hours relative to the activities they consume. Each hospital order requires its own setup and often an engineering change when the hospital revises its drawings.
| Activity | Annual cost | Driver | Driver volume, standard and custom | Rate |
|---|---|---|---|---|
| Machine setups | $540,000 | Number of setups | 12 and 48 | $9,000 per setup |
| Engineering changes | $360,000 | Number of change orders | 4 and 36 | $9,000 per change |
| Material handling | $420,000 | Number of moves | 1,200 and 900 | $200 per move |
| Machine operation | $480,000 | Machine hours | 20,000 and 4,000 | $20 per hour |
How the Pools Were Built
Building the activity pools took about three weeks. The cost accountant interviewed the setup crew lead, the two engineers, the material handlers and the maintenance supervisor, asking each how they divided their time between standard and custom work and what event triggered their effort. Setup crews start work when a new batch or order reaches a machine, so setups became the driver for their costs. Engineers respond to change orders from customers, so change orders drive engineering. Handlers move materials between stations, so moves drive handling. Machine maintenance and power rise with running time, so machine hours drive the last pool. Supervision, which did not fit neatly anywhere, was spread across the pools in proportion to their size.
Comparing the Results
Applying the activity rates, standard carts receive $108,000 for setups, $36,000 for engineering, $240,000 for handling and $400,000 for machine time, a total of $784,000, or $78.40 per cart. Custom carts receive $432,000, $324,000, $180,000 and $80,000, a total of $1,016,000, or $1,016 per cart. Both methods assign the full $1.8 million.
The results reverse the sales team's view. Under activity-based costing, the standard cart earns $135.60, about 26% of its price, while each custom cart loses about $398.
| Measure | Standard cart, traditional | Standard cart, activity-based | Custom cart, traditional | Custom cart, activity-based |
|---|---|---|---|---|
| Direct materials and labor | $306.00 | $306.00 | $832.00 | $832.00 |
| Overhead per unit | $150.00 | $78.40 | $300.00 | $1,016.00 |
| Total unit cost | $456.00 | $384.40 | $1,132.00 | $1,848.00 |
| Price | $520.00 | $520.00 | $1,450.00 | $1,450.00 |
| Margin per unit | $64.00 | $135.60 | $318.00 | minus $398.00 |
Why the Old Numbers Persisted
The sales team had no reason to doubt the old reports. Custom carts brought large orders from prestigious hospitals, and the reported margin of nearly 22% made each one look like a success. The cost of those orders was hidden in overhead accounts that no one connected to specific products: the extra setups, the engineers redrawing compartments after a hospital's review and the handlers moving partly finished carts aside while standard batches ran. Every dollar of that effort was real, but the labor-hour allocation charged most of it to standard carts, which used three quarters of the labor hours.
Is the More Detailed System Worth It?
Activity-based systems can be expensive to build and maintain, requiring interviews, surveys of how employees spend their time and frequent updates. Kaplan and Anderson (2004) proposed time-driven activity-based costing as a simpler alternative: managers estimate the cost per minute of each department's capacity and the minutes each activity takes, then multiply. The approach is easier to update and makes unused capacity visible. For Lakeside, with only two product families, a time-driven model maintained by the cost accountant would capture the main distortions without a large system. Datar and Rajan (2021) note that more refined costing is most valuable when products differ greatly in the resources they consume, which is exactly Lakeside's situation.
What Lakeside Should Do
The new costs do not mean Lakeside should stop making custom carts, which keep its name in front of hospital buyers. They mean custom work must be priced for what it costs. First, the company should quote custom carts from activity-based costs, which suggests prices closer to $2,000 for typical orders. Second, it should charge a separate setup and engineering fee on small orders. Third, it should develop a modular hospital cart with standard frames and optional compartments, reducing setups and change orders. Fourth, sales commissions should be based on margin rather than revenue, so the sales team is rewarded for profitable work.
Conclusion
Allocating overhead on labor hours made complex, low-volume custom carts look profitable and simple standard carts look marginal. Activity-based costing, tracing overhead to setups, engineering changes, handling and machine time, showed the reverse. With more accurate costs, Lakeside can price custom work properly, redesign it to consume fewer resources and stop rewarding sales that lose money.
References
Cooper, R., & Kaplan, R. S. (1988). Measure costs right: Make the right decisions. Harvard Business Review, 66(5), 96-103.
Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.
Kaplan, R. S., & Anderson, S. R. (2004). Time-driven activity-based costing. Harvard Business Review, 82(11), 131-138.
What the BUS 510 Module 5 instructions ask for
Product costing is where BUS 510's focus on profitability becomes most concrete, and this module usually asks students to assign costs to products and compare methods. Your classroom has the Module 5 prompt; this example compares traditional and activity-based costing for two products. Explain the costing system the company uses and why. Allocate overhead under the traditional method and show the rate. Identify activities that drive overhead, choose a cost driver for each and compute activity rates. Assign overhead to products using those rates. Compare unit costs and margins under both methods and explain why they differ. Discuss the costs and limits of a more detailed system. Recommend decisions, such as pricing or process changes, that follow from the more accurate costs.
How this BUS 510 Module 5 example is built
The paper begins with Lakeside Fabrication's two products: 10,000 standard bussing carts a year and 1,000 custom hospital meal carts built to order. A short section explains job order costing for the custom work. The traditional method assigns overhead at $50 per direct labor hour, giving unit costs of $456 and $1,132. A table builds four activity pools with drivers and rates: $9,000 per setup, $9,000 per engineering change, $200 per material move and $20 per machine hour. A second table compares results, showing the standard cart's cost falling to $384.40 and the custom cart's rising to $1,848. Cooper and Kaplan's Harvard Business Review article explains how volume-based allocation distorts costs, and Kaplan and Anderson's time-driven approach offers a lighter system. Recommendations cover custom pricing, a setup charge and design standardization.
BUS 510 Module 5 rubric: what earns full marks
Product costing papers in an MBA accounting course are graded on correct allocation, clear explanation of methods and sound conclusions about profitability. This example shows each rate and allocation so the grader can verify that both methods assign the full $1.8 million of overhead. The activity table pairs every pool with a driver that actually causes the cost, which is the heart of activity-based costing. Interpretation explains why the two methods differ, linking the custom cart's many setups and engineering changes to its higher cost. Cooper and Kaplan's and Kaplan and Anderson's Harvard Business Review articles and Datar and Rajan's cost accounting text support the method and its limits. Recommendations follow from the new costs and consider customer relationships, which shows judgment beyond the arithmetic.
BUS 510 Module 5 help from the desk
The most common mistake in Module 5 is picking drivers with no causal link to the spending, for example spreading setup costs by the number of units built. Each driver should explain why the activity's cost rises. Another error is allocations that do not add back to total overhead; check that both methods assign the same total. Show rates and allocations in tables so the reader can follow. Explain the reason the methods give different answers rather than only reporting that they do. Do not assume activity-based costing is always worth its cost; discuss when a simpler system is adequate. Be careful with conclusions about dropping products; a product that covers its direct costs may still contribute to fixed overhead that will not disappear. Finally, connect your results to a decision the company can make now.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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BUS 510 Module 5 questions, answered
What does BUS 510 Module 5 usually ask for?
Aspen's BUS 510 covers product costing systems in this module, so assigning costs to products and comparing methods such as traditional and activity-based costing is typical. Follow your classroom prompt.
What is activity-based costing?
A method that assigns overhead to products according to the activities they use, such as setups or inspections, each measured with a driver that causes the cost.
Why do traditional and activity-based costs differ?
Traditional systems spread overhead on volume measures like labor hours, so low-volume, complex products receive too little overhead and high-volume, simple products too much.
Where can I find a free BUS 510 Module 5 sample paper?
The full analysis appears above: a stainless steel cart maker's overhead allocated by labor hours and by four activities, with unit costs and margins compared and pricing recommendations.
What is time-driven activity-based costing?
A simpler version of activity-based costing proposed by Kaplan and Anderson that estimates the cost of capacity per minute and the time each activity takes.