Tijuana Bronze
Essay by tay6tay6 • April 18, 2016 • Essay • 3,484 Words (14 Pages) • 1,270 Views
Taylor Krienke
Tijuana Bronze
1)
Product costs: Material costs + Labor cost (run labor hours) + overhead
Valves Pumps Flow Controllers
Material 16 20 22
DL (16/run labor) 4 8 6.4
Overhead 17.55 35.1 28.08
Standard Unit Cost $37.55 $63.1 $56.48
*total overhead given is $680,000 but does not include the set up labor which adds 168 hours X $16= $2,688 for a total overhead of $682,688
**to include the run labor we have to take the total hours of 9,725 X $16= $155,600
***total overhead $682,688/155,600= 4.39 meaning that our overhead is 4.39 times more than our direct labor hours so we have to take the DL and multiply it by the 4.39 to reach the total overhead that is allocated to each product line
2)
Valves Pumps Flow Controllers
Actual Selling Price 57.56 81.26 97.07
Less material VC (16) (20) (22)
Contribution Margin $41.78 $61.26 $75.07
*Case states that the only short-run variable costs are direct material
**We have to use the Actual selling price because their gross margins were not as planned for both the pumps and flow controllers and therefore to calculate the current contribution margin we need the actual selling price less Variable Costs not the Target Selling Price.
3)
Revised product cost:
1) Allocate material related overhead (cost of receiving and handling) to each product line on the cost of material
Receiving $20,000 + Handling $220,000= $220,000/ $458,000 total material costs = ~$0.48
Valves Pumps Flow Controllers
Related overhead .48 .48 .48
Material costs X16 X20 X22
Material overhead $7.68 $9.60 $10.56
2) Take set-up labor out of the total overhead and assign directly to each product line
8 hours for valve runs X $16 labor cost= 128/ 7,500 units= .0171 or .02
40 hours for pump runs X $16 labor cost= 640 / 12,500 units= .0512 or .05
120 hours for Flow Controller runs X $16 labor cost= 1,920/ 4,000= .48
3) Substitute machine hours for labor dollars
Run labor is direct labor here so we take total labor costs of $16 and multiply it by the run labor hours/unit
Valves Pumps Flow Controllers
Labor costs 16 16 16
Run Labor .25 .5 .4
Direct labor $4 $8 $6.40
To calculate the overhead hourly machine rate we have the remaining overhead costs
Engineering 100,000
Packing and Shipping 60,000
Maintenance 30,000
Depreciation 270,000
Total overhead to allocate 460,000/ 10,800 machine hours = $42.59/ hour
Valves Pumps Flow Controllers
Hourly 42.59 42.59 42.59
Hrs/unit .5 .5 .2
Machine cost $21.30 $21.30 $8.52
Combining all three parts:
Valves Pumps Flow Controllers
Material 16 20 22
Related overhead 7.68 9.60 10.56
Set up .02 .05 .48
DL 4 8 6.40
Machine cost 21.30 21.30 8.52
Standard Cost $49 $58.9 $47.96
As estimated by Mary Ford our costs for Pumps and Flow Controllers are in fact lower using this standard cost than the current standard cost, although valves are actually more expensive than the company realizes.
4)
ABC costing here means that whenever possible, overhead costs that cannot be traced directly to product lines should be allocated on the basis of transactions. Therefore we take the total costs of say Receiving for $20,000 and multiply it by the percentage of transactions that are required for Valves which is 3% = 20,000 X .03 = $600 for all units of valves or 600/7,500= $0.08 per unit.
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