Question

Activity-Based Life-Cycle Costing Kagle design engineers are in the process of developing a new "green" product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $600 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data) Unit-based system: Variable conversion activity rate: $100 per direct labor hour Material usage rate: $25 per part ABC system: Labor usage: $15 per direct labor hour Material usage (direct materials): $20 per part Machining: $75 per machine hour Purchasing activity: $170 per purchase order Setup activity: $3,800 per setup hour Warranty activity: $550 per returned unit (usually requires extensive rework) Customer repair cost: $35 per repair hour (average)

Answer 1

Partiulars Design B Design Au Material (25 per part) 3 20,000X25 295000 X25. 7375000 8,c0o, D00 Variable conversiom auhunly 120,000x 100 50,000x 1DD 12, 00D,000 5000,000 Rate 41boper dinet Labour hour 1937s000 Total tost (A 13,o0o,D00 20,000 unils 20,000 produued (B) 968.75 650 Lost unit Pex (A B) cest design uaing undt based Dey Design A per than target paiu 600 pes unr The 1. Lower Locting Howeuenthe us greates unit 650 cost Logietial ost purchate activi hes Loneiolered un are the Analy NOT

ABC analysis Partiularsa Design A aDesign B aMaterial (4a0 per part) 20x320,000 29S000X20 5,900,000 -GHO0,0D0 Labour is pex hour) 15x SD0OD 15x120 D so,000 Machining (43s SXS0,000 4x60,000 machine per hous 37SD,000 4 So0,000 Purchasing (#o per purchase ondan) Hox 2S00 425000 130x2000 -340,000 Setup (4 380D per aetup 3800x700 3800x35 -2660,00D 1330,000 waranty Auhoi (4 SSD bex ehurned un SSOX3S0 s5oxl400 19as00 7H0,000 Costomer epais Lost 35x SOO 3sxa1o0 35 per epai hou) 3SDO Esoo Total ost 14080,000 14828s00 lower Lost design us Design B The

Post purchase oc Design P Is pex urut 20,DOD 2 00,000 Deaig 200,000 u per uuntX2D,00O Ater taking into purchase cest fouaos Lensidenation the post the reuised Leet as any impaut on the post purthase Lest souety Thure b০ wu Dot the Cost because borne by the Thus Deeign B better

Assumption : Post purchase cost is not included in above cost.(that is cost calculated as per Activity based costing.)

If you are benefited from the solution please LIKE

If disliked please comment the reason.

Thank you.