Question

Woodruff Company is currently producing a snowmobile that uses five specialized parts. Engineering has proposed replacing these specialized parts with commodity parts, which will cost less and can be purchased in larger order quantities. Crt activity capacity and demand (with specialized parts required) and expected activity demand (with only commodity parts required) are provided. Activites Activity Driver Actvity Curent Activity Expected Activity Capacity Demand Demand Material usage Installing parts Purchasing parts Number of orders Additionally, the following activity cost data are provided Materia usage: $11 per specialized part used; S16 per commodity part; no fixed activity cost. Instaling parts: $26 per direct labor hour; no fixed activity cost. Purchasing parts: Four salaried clerks, each eaming a $46,000 annual salary each clerk is capable of processing 7,000 purchase orders. Variable activity costs: $1.20 per purchase order processed for forms, postage, etc. Required 1. Calculate the cost reduction produced by using commodity parts instead of specialized parts. Enter your answers as positive amounts. If required, round your answers to the nearest cent. Material usage cost reduction Number of parts Direct labor hours 270,000 85,000 28,000 270,000 85,000 23,940 270,000 68,000 14,700 Labor usage cost reduction Purchasing cost reduction Total savings 2. Suppose that 70,000 units are being produced and sold for $6,600 per unit and that the price per unit will be reduced by the per-unit savings. What is the new price for the configured product? If required, round your intermediate calculations and final answer to the nearest cent. 3. What if the expected activity demand for purchase orders was 11,900? How would this affect the answers to Requirements 1 and 2? If required, round your intermediate calculations and final answers to the nearest cent. Total savings Increase New price to

Answer 1

2 Particulars 3 Material usage reduction 4 Labor usage cost reduction 5 Purchasing cost reduction 6 Total savings Amount (S) 1350000 425000 57088 1832088 9 2) 10 New price 1.1 Rounded ofi 6573.8273 6573.83