Cornerstone Exercise 11.4 (Algorithmic) Activity-Based Life-Cycle Costing Kagle
ID: 2513519 • Letter: C
Question
Cornerstone Exercise 11.4 (Algorithmic)
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 $550 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: $110 per direct labor hour
Material usage rate: $15 per part
ABC system:
Labor usage: $30 per direct labor hour
Material usage (direct materials): $35 per part
Machining: $85 per machine hour
Purchasing activity: $160 per purchase order
Setup activity: $4,000 per setup hour
Warranty activity: $550 per returned unit (usually requires extensive rework)
Customer repair cost: $35 per repair hour (average)
Activity and Resource Information (annual estimates)
Required:
1. Select the lower-cost design using unit-based costing.
- Select your answer -Design ADesign BItem 1
Are logistical and post-purchase activities considered in this analysis?
- Select your answer -YesNoItem 2
2. Select the lower-cost design using ABC analysis.
- Select your answer -Design ADesign BItem 3
3. What if the post-purchase cost was an environmental contaminant and amounted to $20 per unit for Design A and $40 per unit for Design B? Compute the Post-purchase cost for each design.
Assume that the environmental cost is borne by society. Now which is the better design?
- Select your answer -Design ADesign B
Activity and Resource Information (annual estimates)
Design A Design B Units produced 20,000 20,000 Direct material usage 340,000 parts 315,000 parts Labor usage 50,000 hours 120,000 hours Machine hours 50,000 60,000 Purchase orders 3,000 2,500 Setup hours 650 300 Returned units 1,000 300 Repair time (customer) 2,100 500Explanation / Answer
DESIGN A
UNIT BASIS
PER PART
ABC
$
$
DIRECT MAT
DIRECT MAT
17 X $15
255
17 X $35
595
DIRECT ACTIVITY LABOUR
DIRECT LABOUR
2.5 HRS X 110
275
2.5 HRS X $30
75
TOTAL
530
MACHINE HOURS
2.5 X $85
212.50
PURCHASE
ACTIVITY
.15 X $160
24
SET UP
.0325 X 4000
130
TOTAL
1036.50
DESIGN B
UNIT BASIS
PER PART
ABC
$
$
Design B
DIRECT MAT
DIRECT MAT
Units produced
20,000
$15 X 15.75
236.25
$35 X 15.75
551.25
Direct material usage
315,000 parts
DIRECT ACTIVITY ON LABOUR
DIRECT LABOUR
Labor usage
120,000 hours
6 HRS X $110
660
6 HRS X $30
180
Machine hours
60,000
Purchase orders
2,500
TOTAL
896.25
MACHINE HOURS
Setup hours
300
3 HRS X $85
255
Returned units
300
PURCHASE
ACTIVITY
Repair time (customer)
500
.125 X 160
20
SET UP
.015 X 4000
60
TOAL
1066.25
QUESTION 1
UNIT COST - DESIGN A
QUESTION 2
ABC - DESIGN A
QUESTION 3 Are logistical and post-purchase activities considered in this analysis?
- Select your answer –No
3. What if the post-purchase cost was an environmental contaminant and amounted to $20 per unit for Design A and $40 per unit for Design B? Compute the Post-purchase cost for each design.
Post-Purchase Cost
1036.50
1066.25
Design A
$ 20
Design B
$40
1056.50
1106.25
Assume that the environmental cost is borne by society. Now which is the better design?
- Select your answer - Design B
DESIGN A
UNIT BASIS
PER PART
ABC
$
$
DIRECT MAT
DIRECT MAT
17 X $15
255
17 X $35
595
DIRECT ACTIVITY LABOUR
DIRECT LABOUR
2.5 HRS X 110
275
2.5 HRS X $30
75
TOTAL
530
MACHINE HOURS
2.5 X $85
212.50
PURCHASE
ACTIVITY
.15 X $160
24
SET UP
.0325 X 4000
130
TOTAL
1036.50
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.