Question

Problem 4.34 Product-Costing Accuracy, Corporate Strategy, ABC Autotech Manufacturing is engaged in the production of replacement parts for automobiles. One plant specializes in the production of two parts: Part #127 and Part #234, Part #127 pro- duced the highest volume of activity, and for many years it was the only part produced by the plant. Five years ago, Part #234 was added. Part #234 was more difficult to manufacture and required special tooling and setups. Profits increased for the first three years after the addition of the new product. In the last two years, however, the plant faced intense competition, and its sales of Part #127 dropped. In fact, the plant showed a small loss in the most recent reporting period. Much of the competition was from foreign sources, and the plant manager was convinced that the foreign producers were guilty of selling the part below the cost of producing it. The following conversation between Patty Goodson, plant manager, and Joseph Fielding, divisional marketing manager, reflects the concerns of the division about the future of the plant and its products. JOSEPH: You know, Patty, the divisional manager is real concerned about the plant's trend. He indicated that in this budgetary environment, we can't afford to carry plants that don't show a profit. We shut one down just last month because it couldn't handle the competition.

There is no 1 or 2, only 3-5

Answer 1

1.

Overhead Rate	$25.65 per direct labor hour
Part #127	$12.83 per unit
Part #234	$5.77 per unit
Working:
Overhead cost	6990000	25.65	per DLH
Direct Labor Hours	272500
Overhead assigned	Activity	Plantwide	Total	Units	OH cost
	Driver	ovehread	Overhead	Produced	per unit
		rate	cost
Part #127	250000	25.65	6412844	500000	12.83
Part #234	22500	25.65	577156	100000	5.77

Gross profit per unit
Part #127	$10.50
Part #234	$11.97
Working:
	Part #127	Part #234
Prime Cost	$8.53	$6.26
Overhead Cost per unit	$12.83	$5.77
Total manufacturing cost per unit	$21.36	$12.03
	Part #127	Part #234
Market price	$31.86	$24.00
Cost of manufacture	$21.36	$12.03
Gross profit	$10.50	$11.97

2.

	Part #127	Part #234
Prime cost per unit	8.53	6.26
Overhead Cost per unit	6.72	36.28
Total manufacturing cost per unit	15.25	42.54
	Part #127	Part #234
Market Price	31.86	24.00
Manufacturing cost per unit	15.25	42.54
Gross profit per unit	16.61	-18.54

Working:

Setup costs	240000	800.00	Per prodn.run
Production runs	300
Machine costs	1750000	9.46	per machine hour
Machine hours	185000
Receiving Costs	2100000	1500.00	per order
Receiving Orders	1400
Engineering hours	2000000	200.00	per eng.hour
Engineering hours	10000
Material handling Costs	900000	1000.00	Per move
Material Moves	900
Overhead Assigned
	Activity driver		Activity rate		Total
Part #127					overhead
Setup costs	100	production runs	800.00	per production run	80000
Machine costs	125000	machine hours	9.46	per machine hour	1182432
Receiving Costs	400	Orders	1500.00	per batch	600000
Engineering hours	5000	engineering hr.	200.00	per hour	1000000
Material handling Costs	500	Moves	1000.00	per move	500000
Total overhead					3362432
Production					500000
Overhead cost per unit					6.72
	Activity driver		Activity rate		Total
Part #234					overhead
Setup costs	200	production runs	800.00	per production run	160000
Machine costs	60000	machine hours	9.46	per machine hour	567568
Receiving Costs	1000	Orders	1500.00	per batch	1500000
Engineering hours	5000	engineering hr.	200.00	per hour	1000000
Material handling Costs	400	Moves	1000.00	per move	400000
Total overhead					3627568
Production					100000
Overhead cost per unit					36.28