Production A Costs are as follows: $4.5 million per year in rent for factory and

Question

Production A

Costs are as follows:

$4.5 million per year in rent for factory and machinery

components and labor in the amount of $12 million will produce 300 units per year

Production B

In an alternative production method, the production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and are to be assigned at the rate of 30 percent to Android01 and 70 percent to Processor01.

The variable cost of the production facilities and service divisions is $20 million per year. The square footage of factory space and labor needed for the production of 500 units of Processor01 and 300 units of Android01 are listed below.

The remaining cost for the production of Android01 is for components, at $25,000 per unit.

Question 1: In Method B, what would be the cost per unit of producing Android01 using factory space as the allocation basis? What would be the cost per unit using labor as the allocation basis?

Before starting on your calculations, review materials on production cost allocation.

Submit your Allocation of Costs Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Please note that narrative in this Project does not mean audio. It rather means a presentation of the results of your analysis using words and the important numbers. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

Am I dividing 30,000(Factory Space)/80 (Labor)?

Explanation / Answer

The fixed cost are $5million and variable cost are $20million
Now space as an allocation has 70000sq.ft. for Processor01 and 30000sq.ft. for Andriod one totalling to 100,000sq.ft

Now percentage of Square feet for Processor01 = 70000/100000 = 70%
and percentage of square feet for andriod01 = 30000/100000 = 30%

the total fixed plus variable cost at the factory in Production B is $25million

Thus the cost per unit of producing Andriod01 using factory space as allocation will be 30% of $25million
= 0.3 * 25000,000 = 7500,000 = $7.5 million
So for 300 units of android01, the per unit cost = $7.5 million/300 units = $25000


The labor cost for Processor01 is 120 and Andriod01 is 80 totalling to 200
The percentage of processor01 according to labor cost = 120/200 = 60%
The percentage of android01 according to labor cost = 80/200 = 40%

Thus the cost per unit of processor01 using labor cost would be 60% of $25 million
=0.6 * 25000,000 = 15,000,000 = $15 millionSo for
and the cost per unit of android01 using labor cost would be 40% of $25 million
=0.4 * 25000,000 = 10,000,000 = $10 million
So for 300 units of android01, the per unit cost = $10 million/300 units = $33,334


Considering Production A the total cost of producing Android01 will be $4.5million + $12million = 16.5 million
hence the per unit cost will be 16.5 million / 300 units = $55000


Thus for the production B method is the oneI would recommend to the company for taking on its production of andriod01 as it produces for the lowest cost of $25000 per unit, benefiting the company in a larger way byb either increasing profit margins or reducing selling price and being competitive.

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