Task 2 (25%) Sunflower Ltd. manufactures tires and sports rims. It has just comp
ID: 460175 • Letter: T
Question
Task 2 (25%)
Sunflower Ltd. manufactures tires and sports rims. It has just completed the production of its second batch of newly designed sports rims, IM-37. The following tables show the variable costs of producing the relevant units for both cumulative average-time and incremental unit-time learning models.
Table 1: Total variable costs of producing 2, 4, and 8 units (cumulative average-time learning model) uses an 85% cumulative average-time learning model for a learning curve for manufacturing labor time system
Variable Costs of Producing
2 Units
4 Units
8 Units
Direct materials RM150,000 2; 4; 8
Direct manufacturing labor
RM30 10,000; 16,340; 30,400
Variable manufacturing overhead
RM22 10,200; 17,340; 29,480
Total variable costs
RM300,000
300,000
224,400
RM824,400
RM600,000
490,200
381,480
RM1,471,680
RM1,200,000
912,000
648,560
RM2,760,560
Table 2: Total variable costs of producing 2, 3, and 4 units (Incremental unit-time learning model) uses an 85% incremental unit-time learning model as a basis for predicting direct manufacturing labor-hours.
Variable Costs of Producing
2 Units
3 Units
4 Units
Direct materials RM150,000 2; 3; 4
Direct manufacturing labor
RM30 11,000; 15,550; 20,000
Variable manufacturing overhead
RM22 11,100; 15,737; 20,072
Total variable costs
RM300,000
330,000
244,200
RM874,200
RM 450,000
466,500
346,214
RM1,262,714
RM600,000
600,000
441,584
RM1,641,584
As a controller, you are entrusted with a responsibility to decide on which model should the firm choose. Prepare a suggestion report concerning the matter. Your report should include the following points:
Compare your cost predictions in Table 1 and 2 for 2 and 4 units and critically discuss the differences in the predictions.
Critically elaborate on how you should decide which model the firm should use and why you should or should not choose the models.
Please support your arguments with relevant and valid sources from academic journal articles.
Variable Costs of Producing
2 Units
4 Units
8 Units
Direct materials RM150,000 2; 4; 8
Direct manufacturing labor
RM30 10,000; 16,340; 30,400
Variable manufacturing overhead
RM22 10,200; 17,340; 29,480
Total variable costs
RM300,000
300,000
224,400
RM824,400
RM600,000
490,200
381,480
RM1,471,680
RM1,200,000
912,000
648,560
RM2,760,560
Explanation / Answer
Solution :
In given question we have to compare the two models .
Model 1 : Cumulative average-time learning model
Model 2 : Incremental unit-time learning model
Variable Costs of Producing
Variable Costs of Producing
2 Units
4 Units
8 Units
2 Units
3 Units
4 Units
Direct materials RM150,000 2; 4; 8
RM300,000
RM600,000
RM1,200,000
Direct materials RM150,000 2; 3; 4
RM300,000
RM 450,000
RM600,000
Direct manufacturing labor
Direct manufacturing labor
RM30 10,000; 16,340; 30,400
300,000
490,200
912,000
RM30 11,000; 15,550; 20,000
330,000
466,500
600,000
Variable manufacturing overhead
Variable manufacturing overhead
RM22 10,200; 17,340; 29,480
224,400
381,480
648,560
RM22 11,100; 15,737; 20,072
244,200
346,214
441,584
Total variable costs
RM824,400
RM1,471,680
RM2,760,560
Total variable costs
RM874,200
RM1,262,714
RM1,641,584
Now for both the model the learning curve given is 85 % .
But if we analyze both model on the factor given that is ,
This can help us to make a conclusion about the model.
Now We will analyze the case for 2 & 4
Average
Incremental
% change (Increase)
2
2
Direct materials
300000
300000
0.00
Direct manufacturing labor
300000
300330
0.11
Variable manufacturing overhead
224400
244200
8.82
Total variable costs
824400
874200
6.04
.
Average
Incremental
% change (Increase)
4
4
Direct materials
600000
600000
0.00
Direct manufacturing labor
490200
600000
22.40
Variable manufacturing overhead
381480
441584
15.76
Total variable costs
1471680
1641584
11.54
If we see carefully in above table we will come to know that the incremental model is having the higher cost compare to Average model.
So with ref to calculation & cots select model Average -time learning model .
Variable Costs of Producing
Variable Costs of Producing
2 Units
4 Units
8 Units
2 Units
3 Units
4 Units
Direct materials RM150,000 2; 4; 8
RM300,000
RM600,000
RM1,200,000
Direct materials RM150,000 2; 3; 4
RM300,000
RM 450,000
RM600,000
Direct manufacturing labor
Direct manufacturing labor
RM30 10,000; 16,340; 30,400
300,000
490,200
912,000
RM30 11,000; 15,550; 20,000
330,000
466,500
600,000
Variable manufacturing overhead
Variable manufacturing overhead
RM22 10,200; 17,340; 29,480
224,400
381,480
648,560
RM22 11,100; 15,737; 20,072
244,200
346,214
441,584
Total variable costs
RM824,400
RM1,471,680
RM2,760,560
Total variable costs
RM874,200
RM1,262,714
RM1,641,584
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