ABC COMPANY

BASIC PRODUCT INFORMATION:

THREE PRODUCTS A B C
       
Production 10,000 units in 1 run 15,000 units in 3 runs 5,000 units in 10 runs
       
Shipments 10,000 units in 1 shipment 15,000 units in 5 shipments 5,000 units in 20 shipments
       
Selling Prices      
Target $162.61 $134.09 $ 81.31
Actual $162.61 $125.96 $105.70
       
Manufacturing Cost
Raw Material
5 components per unit
@$4.00 each = $20.00
6 components per unit
@$5.00 each=$30.00
10 components per unit
@$1.00 each = $10.00
Labor Usage
(Labor = $20.00/hour including fringe benefits)		      


Total
Set-up Labor 10 hrs per
Production run		 10 hrs. per
Production run		 11 hrs per
Production run
150 hours

Run Labor
½ hr. per unit
1/3 hr. per unit
¼ hr. per unit
11,250 hours
Machines Usage
(Machine cost = $70.00 per hour)
¼ hr. per unit
1/3 hr. per unit
½ hr. per unit
10,000 hours

There is only one production department ­ "machines" ­ and it takes a little more than one labor hour for each machine hour (11,250/10,000) at the current product mix.

Other Overhead*
 
Receiving Department
Engineering Department
Packing Department		 $300,000
500,000
200,000

ABC COMPANY--TRANSACTION QUESTIONS:

  1. Calculate individual unit product costs for A, B, and C. Include raw material, direct labor and overhead based on direct labor dollars. Overhead includes total set-up, machine usage cost, receiving, engineering and packaging.


  3. Calculate unit product costs for A, B, and C. Break out set-up labor by product based on set-up time per run. Break out overhead material receiving cost and allocate it based on total raw material purchases. Use machine hours instead of labor hours to allocate the remaining overhead costs.


  5. Now use transactions to calculate individual unit cost for A, B, and C. For receiving, allocate cost based upon the number of raw material components put into production. Allocate packing based upon the number of shipments. Allocate engineering 25% to A; 35% to B; and 40% to C. Based on time estimates -- use machine hours to allocate the remaining overhead, leave raw material, direct labor run; and set-up as in (2) above.


  7. Explain your findings.

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