Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
PROBLEM 19.2A
THE KALLAPUR COMPANY (continued)
c.
KAP1 QUIN
30$ 45$
Given that it takes 2 hours ($24 total labor cost per unit/$12 per hr. wage rate) to produce
each unit of KAP1 and 5 hours ($60 total labor cost per unit/$12 per hr. wage rate) to
produce each unit of QUIN, the total expected labor hours needed for the year are:
If fixed overhead is allocated on the basis of direct labor hours, the allocation rate per hour
is equal to $16 calculated as follows:
Total manufacturing cost per unit:
Direct materials cost per unit …………………………
PROBLEM 19.2A
THE KALLAPUR COMPANY (continued)
d.
Allocation Rate
per Unit of Activity
KAP1 QUIN
80,000$ 320,000$
Setup costs (100 × $800, 400 × $800) ………………….
Total fixed overhead allocated per unit:
The allocation rates of each overhead activity are calculated as follows:
=
Total Activity Units
Overhead Cost
PROBLEM 19.2A
THE KALLAPUR COMPANY (continued)
e.
f.
KAP1 QUIN
320,000$ 80,000$
KAP1 QUIN
30$ 45$
Total manufacturing cost per unit:
Total fixed overhead allocated per unit:
Setup costs (100 × $3,200, 25 × $3,200) …………….
Direct materials cost per unit ………………………
Since the cost per unit of KAP1 is below the target cost of $102, it is earning a return
greater than the desired rate. The cost per unit of QUIN is above the target cost of $187, so
it is not earning the desired return.
The only fixed overhead activities that are value-added are machining and shipping. The
proportion of these costs to total fixed overhead is:
Reducing the number of setups required for one product while not reducing the related
overhead cost will change the allocation rate per setup and the total manufacturing cost
per unit for each product.
PROBLEM 19.2A
THE KALLAPUR COMPANY (concluded)
g.
KAP1 QUIN
40,000$ 160,000$
KAP1 QUIN
30$ 45$
Since the cost per unit of KAP1 is above the target cost of $102, it will not earn the desired
15% return. The cost per unit of QUIN is below the target cost of $187, so it will earn a
return greater than the desired rate.
Total manufacturing cost per unit:
With the new machine, the allocation rate per setup is calculated as follows:
Setup costs (20 × $2,000, 80 × $2,000) …………………
Total fixed overhead allocated per unit:
Direct materials cost per unit ……………………………
PROBLEM 19.3A
MEIGER MINING
a.
b. Site A Site B
3.80$ 4.00$
c.
Total cost per ton:
30 Minutes, Medium
Variable costs …………………………………
Target Cost = Target Price - Target Profit
If the conveyor is purchased, the total fixed costs associated with Site B will increase by
40 Minutes, Medium
PROBLEM 19.4A
ARUSETTA, INC.
a.
Year 1 Year 2
Prevention costs:
Product design 5,000$ 15,000$
Process reengineering 8,000 12,000
Appraisal costs:
Raw materials inspections 4,800$ 2,300$
Final inspections 10,000 7,000
Total appraisal costs 14,800$ 9,300$
Internal failure costs:
Scrap 2,000$ 1,200$
External failure costs:
Warranty expense 22,000$ 18,500$
Liability claims 5,000 8,500
Returns resulting from defects 7,000 4,500
b.
d.
Lost sales due to quality problems are often the result of a poor reputation. It may take
ARUSETTA, INC.
Quality Cost Report
Prevention costs increased by $20,100 from Year 1 to Year 2 but external failure costs
only decreased by $2,500. One explanation for this somewhat surprising result is that a
PROBLEM 19.5A
HOME DEPOT
•
b.
•
a.
30 Minutes, Medium
Categories in the Home Depot discussions in Note 1 about the value chain:
R & D and Design. Not much mentioned about this part of the value chain, although
the section on Capitalized Software Costs suggests that R & D associated with software
The following items suggest cost information is important in managing the value chain:
Home Depot self insures as reported. This implies that Home Depot analyzed the costs
of purchasing insurance and found it to be non-valued-added.
30 Minutes, Medium
PROBLEM 19.6A
KARE COMPANY
a.
b.
Year 1 Year 2
Total Quality Sales $10,000,000 $10,000,000
c.
d.
On the graph the prevention and appraisal costs versus the internal and external
failure costs for year 1 and year 2.
Prevention—Quality Training
Optimum Quality is a moving target, not a fixed point. The prevention and
$ Cost
PROBLEM 19.7A
BOOKWEB, INC.
a. Activity-based management has two parts:
1.
c.
50 Minutes, Strong
Activity-based management is useful when products consume varied amounts of multiple
resources. That is when product complexity is high and product volume varies significantly
across product lines.
Creation and collection of activity-based cost information.
Examples of situations that may have given rise to non-value-added activities at BookWeb:
PROBLEM 19.7A
BOOKWEB, INC. (concluded)
d.
Activity Books Software
REVENUE $3,900,000 $2,600,000
e.
The following analysis shows that BookWeb will not achieve 13 percent cost of sales for the
Books line, but will be able to get below the 13 percent goal the Software line.
The Books line needs more cost cutting by $25,250 ($532,250 - X / $3,900,000 × .13) to
30 Minutes, Medium PROBLEM 19.8A
VALUE CHAIN, QUALITY, AND EFFICENCY
AT KIMBERLY-CLARK
•
•
Students answers may vary. Suggested matching concepts for each area are listed below:
…grow our strong positions in personal care by leveraging our brands and
providing innovations.—Concepts: Learning objectives 19-1, 2, 3, 4, and 5:
…For consumer tissue, we seek to bring differentiated, value-added
innovations...while simultaneously focusing on net realized revenue, improving mix
SOLUTIONS TO PROBLEMS SET B
PROBLEM 19.1B
QUARTEX CORPORATION
a.
b.
Rework
c.
Production Activity
9
Number of Days
Cutting materials ………………………………………………………
30 Minutes, Medium
Total cycle time:
Value-added production activities:
Non-value-added production activities:
PROBLEM 19.1B
QUARTEX CORPORATION (concluded)
d.
Value-Added Activity Days
9
6
e.
f.
Rework—eliminated
Manufacturing efficiency ratio:
The following activities might be reduced or eliminated if Quartex implements a JIT system:
Positive consequences: reduction in cost of producing goods/services, reduction in overall
Cutting materials ……………………………………………………….
Painting finished products ……………………………………………..
