Problem 3
Braithwaite Company manufactures two types of kayaks, the Intrepid and Explorer. Previously, the company has allocated manufacturing support costs using a plant-wide rate based on direct labour hours. It has been suggested that the company consider assigning support costs to the equipment using activity-based costing. The following data has been collected:
|
Item |
Intrepid |
Explorer |
|
Units produced and sold |
50,000 |
20,000 |
|
Direct labour hours used |
25,000 |
20,000 |
|
Direct labour cost |
$75,000 |
$60,000 |
|
Number of times each unit is handled |
3 |
5 |
|
Number of cuts per unit |
2 |
6 |
|
Number of design changes (total) |
5 |
10 |
|
Number of product setups (total) |
30 |
40 |
The actual manufacturing support costs incurred were as follows:
|
|
Related Costs |
|
Handling |
$ 500,000 |
|
Cutting |
1,500,000 |
|
Design changes |
600,000 |
|
Setups |
20,000 |
|
Total |
$2,620,000 |
The direct material cost for the Intrepid model is $500 per unit, and for the Explorer model, $700 per unit.
Required:
1. Determine the unit cost of each product using direct labour hours to allocate all manufacturing support costs.
2. Determine the unit cost of each product using activity-based costing.
3. Explain why the unit cost is different in requirements 1 and 2.
Problem 6 (12 marks)
Whyte Trucks Inc. produces large, heavy duty trucks. It is attempting to reduce manufacturing costs. It polled customers with respect to product requirements and obtained the following information:
|
Category |
Importance |
|
Driver comfort |
30 |
|
Fuel efficiency |
50 |
|
Safety |
20 |
Whyte identified the following target costs for various truck components:
|
Function group |
Target cost |
|
Frame |
$30,000 |
|
Engine |
50,000 |
|
Body |
40,000 |
|
Other |
80,000 |
Whyte engineers produced the following quality function deployment matrix:
|
|
|
|
|||
|
|
|
Function group |
|||
|
Categories |
|
Frame |
Engine |
Body |
Other |
|
Driver comfort |
|
.2 |
|
.2 |
.6 |
|
Fuel efficiency |
|
|
.6 |
.3 |
.1 |
|
Safety |
|
.3 |
.1 |
.2 |
.4 |
Required: Determine which function groups are candidates for cost reduction.
