Two years ago, company scientists developed an alloy with all of the properties of the raw materials used in XL-D that generates nowastewater. Some prototype components using the new material were produced and tested and found to be indistinguishable fromthe old components in every way relating to their fitness for use. The only difference is that the new alloy is more expensive than theold raw material. The company has been test-marketing the newer version of the component, referred to as XL-C, and is currentlytrying to decide its fate.Manufacturing of both components begins in the Production Department and is completed in the Assembly Department. No otherproducts are produced in the plant. The following information relates to the two components:Units producedRaw material costs per unitDirect labor-hours per unit-ProductionDirect labor-hours per unit-AssemblyDirect labor rate per hour-all laborMachine-hours per unit-ProductionMachine-hours per unit-AssemblyTesting hours per unit (all in production)Shipping weight per unit (pounds)Wastewater generated per unit (gallons)Annual overhead costs for the two departments follow:SupervisionMaterial handlingTestingWastewater treatmentDepreciation on equipmentShippingTotalProductionDepartment$ 108,00097,000158,000258,000408,0007,800$ 1,036,800XL-D100,000$ 12.800.10.4$ 24.001.60.43.01.010.0XL-C25,000$ 14.80$ 24.001.60.43.01.60.0AssemblyDepartment$ 248,00044,00000.10.4108,000128,000$ 528,000The company president believes that it's foolish to continue producing two essentially equivalent products. At the same time, thecorporate image is somewhat tarnished because of a toxic dump found at another site (not the Valley plant). The president would liketo be able to point to the Valley plant as an example of company research and development (R&D) working to provide anenvironmentally friendly product. The controller points out to the president that the company's financial position is shaky, and it cannotafford to make products in any way other than the most cost-efficient one. a. 3C's current cost accounting system charges overhead to products based on direct labor cost using a single plantwide rate. Whatproduct costs will it report for the two products if the current allocation system is used?b. The controller recently completed an executive education course describing the two-stage allocation procedure. Assume that thefirst stage allocates costs to departments and the second stage allocates costs to products. The controller believes that the costs willbe more accurate if machine-hours are used to allocate Production Department costs and labor-hours are used to allocate AssemblyDepartment costs. What product costs will be reported for the two products if the two-stage allocation process is used?d. The president argues that an activity-based costing system would provide even better costs. The company decides to computeproduct costs assuming an ABC system is implemented only in the Production Department. Overhead in Assembly will continue to beallocated based on direct labor cost. The cost drivers selected for the activity-based costing system are as follows.Overhead ItemSupervisionMaterial handlingTestingWastewater treatmentDepreciation on equipmentShippingDriverDirect labor-hoursMaterial costTesting hoursWastewater generatedMachine-hoursWeightWhat product costs would be reported if this ABC system were implemented? Assume that the production mix and costs would remainas originally planned.

Activity-Based Costing (ABC) is a costing methodology that assigns overhead costs to specific…

Answered: Two years ago, company scientists…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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McDermott Company has developed a new industrial component called IC-75. The company is excited about IC-75 because it offers superior performance relative to the comparable component sold by McDermott's primary competitor. The competing part sells for $1,300 and needs to be replaced after 2,100 hours of use. It also requires $250 of preventive maintenance during its useful life. The IC-75's performance capabilities are similar to its competing product with two important exceptions-it needs to be replaced after 4,200 hours of use and it requires $350 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: 1. What is the reference value that McDermott should consider when pricing IC-75? 2. What is the differentiation value offered by IC-75 relative the competitor's offering for each 4,200 hours of usage? 3. What is IC-75's economic value to the customer over its 4,200-hour life? 4. What range of possible prices should McDermott consider when…
An existing robot is used in a commercial material laboratory to handle ceramic samples in the hightemperature environment that is part of several test procedures. Due to changing customer needs, the robot will not meet future service requirements unless it is upgraded at a cost of $2,000. Because of this situation, a new advanced technology robot has been selected for potential replacement of the existing robot. The accompanying estimates have been developed from information provided by some current users of the new robot and data obtained from the manufacturer. The firm’s before-tax MARR is 25% per year. Based on this information,should the existing robot be replaced? Assume that a robot will be needed for an indefinite period.
Brandon Technology makes two models of a specialized sensor for the aerospace Industry. The difference in the two models relates to the required accuracy of the sensor. The Standard model is used for most normal operations while the High-Performance model is used for high-altitude and specialized missions. Before shipment, the two models are passed through a machine that, among other things, certifies the accuracy of the sensor. The company only has one testing machine. The price and costs of the two sensor models are shown here: Price per sensor Standard $ 52 $ 34 0.04 Variable cost per sensor Testing hours per sensor The testing machine used for both models has a capacity of 8.250 hours annually. Fixed manufacturing costs are $2,400,000 annually. Required: a. Suppose that the maximum annual unit sales that is possible for Brandon Technology is 250,000 units of the Standard model and 80,000 of the High-Performance model. How many units of each sensor model should Brandon Technology…
Brandon Technology makes two models of a specialized sensor for the aerospace industry. The difference in the two models relates to the required accuracy of the sensor. The Standard model is used for most normal operations while the High-Performance model is used for high-altitude and specialized missions. Before shipment, the two models are passed through a machine that, among other things, certifies the accuracy of the sensor. The company only has one testing machine. The price and costs of the two sensor models are shown here: Standard High-Performance Price per sensor $ 52 $ 96 Variable cost per sensor $ 34 $ 41 Testing hours per sensor 0.04 0.11 The testing machine used for both models has a capacity of 8,250 hours annually. Fixed manufacturing costs are $2,400,000 annually. Required: a. Suppose that the maximum annual unit sales that is possible for Brandon Technology is 250,000 units of the Standard model and 80,000 of the High-Performance model. How many…
Brandon Technology makes two models of a specialized sensor for the aerospace industry. The difference in the two models relates to the required accuracy of the sensor. The Standard model is used for most normal operations while the High-Performance model is used for high-altitude and specialized missions. Before shipment, the two models are passed through a machine that, among other things, certifies the accuracy of the sensor. The company only has one testing machine. The price and costs of the two sensor models are shown here: Standard $ 56 Price per sensor Variable cost per sensor Testing hours per sensor $36 0.04 The testing machine used for both models has a capacity of 8,270 hours annually. Fixed manufacturing costs are $2,500,000 annually. Required: a. Suppose that the maximum annual unit sales that is possible for Brandon Technology is 251,000 units of the Standard model and 87,700 of the High-Performance model. How many units of each sensor model should Brandon Technology…
Pix Paper Inc. produces photographic paper for printing digital images. One of the processes for this operation is a coating (solvent spreading) operation, where chemicals are coated onto paper stock. There has been some concern about the cost performance of this operation. As a result, you have begun an investigation. You first discover that all materials and conversion prices have been stable for the last six months. Thus, increasesin prices for inputs are not an explanation for increasing costs. However, you have discovered three possible problems from some of the operating personnel whose quotes follow:Operator 1: “I’ve been keeping an eye on my operating room instruments. I feel as though our energy consumption is becoming less efficient.”Operator 2: “Every time the coating machine goes down, we produce waste on shutdown and subsequent startup. It seems as though during the last half year, we have had more unscheduled machine shutdowns than in the past. Thus, I think our yields…
MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 10,000 units of the module per year for $16 each. The following information pertains to MSI’s production of the control modules: Direct materials $ 9 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total cost per unit $ 18 MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $35,000 in annual profit. Recompute the difference in cost between making and buying under this scenario.
Polaris Industries wishes to purchase a multiple-use in-plant ‘‘road test’’ simulator that can be used for ATVs, motorcycles, and snowmobiles. It takes digital data from relatively short drives on a desired surface—from smooth to exceptionally harsh—and simulates the ride over and over while the vehicle is mounted to a test stand under load. It can run continuously if desired and provides opportunities to redesign areas of poor reliability. It costs $128,000, and its market value decreases by 30 percent each year. Operating costs are modest; however, maintenance costs can be significant due to the rugged use. O&M in the first year is expected to be $10,000, increasing by 25 percent each subsequent year. MARR is 15 percent. What is the optimum replacement interval?
The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Chemical Std input quantity Std cost per liter Total cost Echol 200 $ 0.200 $ 40.00 Protex 100 0.425 42.50 Benz 250 0.150 37.50 CT-40 50 0.300 15.00 600 $ 135.00 The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 140 batches of Charger Power were manufactured during the current production period. The…
McDermott Company developed a new industrial component called IC-75 that offers superior performance relative to the comparable component sold by McDermott's primary competitor. The competing part sells for $1,440 and needs to be replaced after 2,240 hours of use. It also requires $320 of preventive maintenance during its useful life. The IC-75's performance capabilities are similar to its competing product with two important exceptions-it needs to be replaced after 4,480 hours of use and it requires $420 of preventive maintenance during its useful life. Required: From a value-based pricing standpoint: 1. What is the reference value McDermott should consider when pricing IC-75? 2. What is the differentiation value offered by IC-75 relative the competitor's offering for each 4,480 hours of usage? 3. What is IC-75's economic value to the customer over its 4,480-hour life? 4. What range of possible prices should McDermott consider when setting a price for IC-75? 1. Reference value 2.…
The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Std cost per liter $0.200 0.425 0.150 0.300 Std input Chemical quantity Echol 200 Protex Benz CT-40 100 250 50 600 The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 149 batches of Charger Power were manufactured during the current production period. The controller of BE has determined its costs and chemical…
The Becton Enterprises (BE) produces a gasoline additive, Charger Power. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. Loss of output and efficiency may result if the controls are not effective. The standard cost of producing a 500-liter batch of Charger Power is $135. The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: Chemical Std input quantity Std cost per liter Total cost Echol 200 $ 0.200 $ 40.00 Protex 100 0.425 42.50 Benz 250 0.150 37.50 CT-40 50 0.300 15.00 600 $ 135.00 The quantities of chemicals purchased and used during the current production period are…

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