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:
|
Cost Pool
|
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
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.