Question

Machine setups -         $130 per setup                         Soldering -                  $2.25 per joint

Quality control -         $40 per inspection                   Shipments -                 $220 per shipment

Purchase orders -        $75 per order                           Machine related -        $8 per machine hour

	Product X-20			Product Y-30
	Expected Activity	Amount of OH		Expected Activity	Amount of OH
Machine setups	xx setups	$130,000		600 setups
Quality control	xx inspect	160,000		5,000 inspections
Purchase orders	xx orders	63,000		360 orders
Soldering	xx joints	135,000		140,000 joints
Shipments	xx shipments	88,000		200 shipments
Machine related	xx mach hrs	240,000		40,000 mach hrs.
Total overhead costs		$816,000

2. The firm believes that it cannot raise prices on either of these 2 products in the short-term, but will investigate whether specific cost initiatives should be undertaken.

1. Calculate the per unit cost per activity
2. Next, identify 2 activity costs (from above) that you would suggest that Hill Mfg investigate first.
3. Why did you pick these 2 costs? Discuss the reasoning behind your choices – do not simply say ‘the cost was high’. Think about what is causing the high cost.

Answer 1

Answer:

Answer 1& 2
Product X-20						Product Y-30
												Rate	Expected Activity	Amount of OH	Rate per unint	% of Cost	Rate	Expected Activity	Amount of OH	Rate per unint	% of Cost
Machine setups	$130	1,000	$130,000	$4.33	15.93%	$130	600	78,000	$15.60	7.93%
Quality control	$40	4,000	160,000	$5.33	19.61%	$40	5,000	200,000	$40.00	20.33%
Purchase orders	$75	840	63,000	$2.10	7.72%	$75	360	27,000	$5.40	2.74%
Soldering	$2.25	60,000	135,000	$4.50	16.54%	$2.25	140,000	315,000	$63.00	32.01%
Shipments	$220	400	88,000	$2.93	10.78%	$220	200	44,000	$8.80	4.47%
Machine related	$8	30,000	240,000	$8.00	29.41%	$8	40,000	320,000	$64.00	32.52%
Total overhead costs			$816,000	$27.20	100.00%			984,000	$196.80	100.00%
	unit	30,000.00	$27.20				5,000	196.80
Per unit of overhead product X-20		$27.20					Per unit of overhead product Y-30	$196.80
Answer 3
For product X-20
Quality Control cost and Machine related cost contributes more
For product Y-30
Sholdering cost and Machine related cost contributes more
This is to investigate that both the product requires high number of Machine hours which lead to High Contribution Cost
These factors contribute more activities as lead to more cost
The Investigation required to redude the cost control cost reduction activity relating to above expenses
why those activity need high degree of contribution towards to overhead