=69,575 / 800

INCOME (LOSS) PROBABILITY EXPECTED VALUE

Amount
=86.97
P (70,000) Activity 1.10 500 13.17(7,000)
6,585
10,000 Activity 2.20 2,500 21.60 2,000
54,000
60,000 Gen.factory.40 240 37.4624,0008,990
100,000 Total .20 69,575
20,000 5. ALLAIRE Corporation
140,000 .10 14,000 a. Using standard costs, the total contribution expected
TOTA L 53,000 in 2011 by Allaire Corporation from the TV Board is
1. OLEX Company Totals
Per Unit For 65,000 units
Revenue 150 9,750,000
2. LANEDO Company Direct material 80 5,200,000
Material overhead
Throughput per hour = Total units manufactured = 50,000 (10% of material) 8 520,000
Goods units manufactured 40,000 Direct labor
= 1.25 ($14 x 1.5 hours) 21 1,365,000
Variable overhead
Process quality yield = good units / total units ($4x 1.5 hours)* 6 390,000
= 40,000/50,000 = 80% Machine time ($10 x.5) 5 325,000
Total cost 120 7,800,000
3. Cost driver Budgeted Budgeted act level Unit contribution 30
No. of P 20,000 200 100 Total contribution (65,000 x 30) $ 1,950,000
setups *Variable overhead rate
No. of 130,000 6,500 20 $1,120,000 + 280,000 hours = $4 per hour.
inspections
No. of 80,000 8,000 10 b. Using standard costs, the total contribution expected
materials in 2011 by Allaire Corporation from the PC Board
moves Totals for
Engineering 50,000 1,000 50
Per Unit 40,000 units
hours
Revenue 300 12,000,000
Direct material 140 5,600,000
a. Number of setups------------------1 * 100 = 100 Material overhead
Number of inspection------------20 * 20 = 400 (10% of material) 14 560,000
Number of material move-------30 * 10 = 300 Direct labor
Engineering hours-----------------10 * 50 = 500 ($14x4 hours) 56 2,240,000
JOB 101 (Overhead Cost) ------------------1,300 Variable overhead
($4 x 4 hours)* 16 640,000
b. Direct materials-------------------------------------------12,000 Machine time
Direct Labor--------------------------------------------------2,000 ($10 x 1.5) 15 600,000
Overhead: JOB 102 Total cost 241 9,640,000
Number of setups------------------2 * 100 = 200
Number of inspection------------10 * 20 = 200 Procurement 400,000 / 4,000,000 .10 per part
Production scheduling 220,000 / 110,000 2.00 per board
Number of material move-------10 * 10 = 100
Packaging & shipping 440,000 / 110,000 4.00 per board
Engineering hours-----------------50 * 50 = 2500 3,000 Machine set-ups 446,000 / 278,750 1.60 per board
Divide by Units Completed-----------------------------------/50 Hazardous waste disposal 48,000 / 16,000 3.00 per pound
Unit Cost----------------------------------------------------------340 Quality control 560,000 / 160,000 3.50 per inspection
General supplies 66,000 / 110,000 .60 per board
4. ACTION Company Machine insertion 1,200,000 / 3,000,000 .40 per part
a. Predetermined overhead rate = Manual insertion 4,000,000 / 1,000,000 4.00 per part
Wave soldering 132,000 / 110,000 1.20 per board
Estimated overhead cost / Estimated direct labor
Unit contribution 59
hours
Total contribution (40,000 x 59) 2,360,000
= 92,023 / 340 =270.66 per direct labor hours
1,120,000 + 280, 000 hours = $4 per hour.
b. Overhead cost per unit (Product B) =
c. Shown below are the calculations of the cost drivers
Predetermined rate x direct labor hours
U
= 270.66 x 0.2 = 54.13 per unit
Using activity-based costing, the total contribution expected
in 2011 by Allaire Corporation from the TV
c. Predetermined overhead rate for Act. 1 (ABC)
Totals for
Activity 1 (Est. Overhead) / Expected activity
Per Unit 65,000 units
= 14, 487 / 1,100 = 13.17
Revenue 150 9,750,000
Direct material 80 5,200,000
d. Overhead cost per unit product A (ABC) Material overhead
Act. Cost Pool Est. Overhead activity Overhead rate Procurement (.10x25) 2.50 162,500
Activity 1 14,487 1,100 13.17 Production scheduling 2 30,000
Activity 2 64,800 3,000 21.60 Packaging & shipping 4 260,000
Gen. factory 12,736 340 37.46 Variable overhead
Machine set-ups (1.60x2) 3.20 208,000
Waste disposal (3 x .02) .06 3,900
Quality control 3.50 227,500
General supplies .60 39,000
Manufacturing
 Machine insertion (.40 x 24) 9.60 624,000 Warranty repairs and replacements......................58,000
Manual insertion 4 260,000 Product recalls........................................................91,000
Wave soldering 1.20 78,000 Total..............................................................................149,000
Total cost 110.66 7,192,900 Total quality cost.......................................................396,000
Unit contribution 39.34
Total contribution 2,557,100

d. Using activity-based costing, the total contribution

expected in 2011 by Allaire Corporation from the PC
45. CUTE corporation
Totals for
Per Unit 40,000 units A. Total attempted units-------------6,000,000
Revenue 300 12,000,000 Goods units manufactured------4,800,000
Direct material 140 5,600,000 Defective units 1,200,000
Material overhead
Procurement (.10x55) 5.50 220,000
B. Manufacturing cycle efficiency
Production scheduling 80,000
Value-added processing time / total hours
Packaging & shipping 160,000
Variable overhead = 600 / 800 = .75
Machine set-ups (1.60x3) 4.80 192,000
Waste disposal (3 x .35) 1.05 42,000 C. Process productivity
Quality control (3.50 x 2) 7.00 280,000 = Good units manufactured / total hours
General supplies .60 24,000 = 4,800,000 / 800 = 6,000
Manufacturing
Machine insertion (.40 x 35) 14.00 560,000
Manual insertion (4 x 20) 80 3,200,000 D. Process quality yield
Wave soldering 1.20 48,000
Total cost 260.15 10,406,000
Unit contribution 39.85
Total contribution 1,594,000
E. Hourly throughput
Good units’ manufactured / value-added processing time
= 4,800,000 / 600 = 8,000

42. Manufacturing cycle efficiency 46. Quality cost index

= value-added production time (Process time) = (total quality cost / direct labor cost) x 100
*Total cycle time = (*120,000 / 300,000) x 100 = 40
= 4 / 12 = 33.33%
*Total quality cost: Prevention ---------20,000
*Total Cycle time = 12 Order received to start-------10 Appraisal------------30,000
Process time---------4 Cycle time------------------------12 Internal failure-----60,000
Inspection time---1.5 Total delivery cycle time -----22 External failure-----10,000 120,000
Queue time--------4.5
Move time------------2 47. Raw material account, closing balance
Raw materials, operating balance--------500
43. ROMEL Company Raw materials purchased-----------------4,600
Year 1 Year 2 Cost of goods sold, materials---------- (*4,090)
Prevention cost Raw materials, Balance 1,010
Quality Audits 35,000 50,000
Training 40,000 75,000 80,000 130,000 *cost of goods sold at standard cost -----8,998
Appraisal cost Divide by total cost------------------------------22
Statistical process 70,000 100,000 Cost per unit ----------------------------------409 x 10 = 4,090
Inspection and testing 100,000 170,000 150,000 250,000
Internal failure cost 48. Throughput return per production hour of the bottleneck
Rework 90,000 50,000 Resource = (selling price – material cost) x hours
Spoilage 80,000 170,000 55,000 105,000 = (24.99 – 8.87) x (60/6.5) = 148.8
External failure cost
Warranties 180,000 80,000
Est. customer losses 800,000 980,000 450,000 530,000 49.
Wall mirrors – 25 units x 200 hours per unit = 5,000 hrs
44. GAGNON company Specialty windows – 25 units x 200 hours per unit= 5,000 hrs
Prevention costs Systems development...............29,000 Total hours 10,000 hrs
Quality training.....................................................25,000
Total................................................................................54,000 Budgeted materials handling costs 50,000
Appraisal costs Divided by total hours ÷ 10,000
Test and inspection of incoming materials...........73,000 Materials handling cost per hour 5
Supervision of testing and inspection activities....24,000 Hours per unit x 200
Maintenance of test equipment...........................18,000 Costs allocated to one unit 1,000
Total..............................................................................115,000
Internal failure costs Wall Mirrors: 25 mirrors x 5 moves = 125 moves
Disposal of defective products..............................55,000 Specialty Mirrors: 25 mirrors x 15 moves = 375 moves
Net cost of scrap....................................................23,000 Total Material Handling Moves 500
Total................................................................................78,000
External failure costs 50,000 moves cost / 500 moves = 100 per move
Wall mirror: 5 moves per mirror x 100 per move = 500 for a total of 2,560 hours, or $21,760 for 200 units. Variable
Specialty Mirrors: 15 x 100 = 1,500 overhead is applied on the basis of direct labor hours at the
rate of $4 per direct labor hour; so for 2,560 DL hours, variable
50. Direct materials-----------------------1,000 overhead would be $10,240. Thus, the total variable cost for
Direct labor----------------------------4,000 200 units is $6,000 + $21,760 + $10,240, for a total of $38,000.
Maintenance (500 x 4) -------------2,000 Fixed overhead is applied at the rate of 10% of total variable
Inspection (100 x 4) -------------------400 cost, so fixed overhead applied is 10% of $38,000, or $3,800.
Total 7,400 The total cost for 200 units is thus $38,000 + $3,800, or
Activity rate: Inspection (150,000 / 1,500) = 100/inspection $41,800. Subtracting the cost for the first 50 units from the
Maintenance (100,000 / 25,000) = 4/MH total cost for the first 200 units, we get $41,800 í $15,400, or
$26,400 as the cost for units 51 through 200. C
The company is able to charge 125% of the full cost for the
order. The full cost will include $100,000 of fixed costs and B. Since there are two doublings, the number of hours
$240,000 of materials costs. In addition, there will be labor required for 200 units using a 70% learning curve is:
costs, However, we need to determine what those labor costs
1,000 hours × (.7 × 2) × (.7 × 2) = 1,960 hours. 1,960 hours
will be. We can calculate that the learning curve is 80%. The
first 10 units produced cost $120,000 in labor. If no learning
required for 200 units less 1,000 hours required for the
had taken place, the first 20 units would have cost $240,000 in first 50 units = 960 hours required for the last 150 units.
labor. However, the labor cost for the first 20 units was 960 hours ÷ 150 units = 6.4 hours required per unit for
$192,000. By dividing $192,000 by $240,000, we calculate that the last 150 units. C
the learning curve is 80%. We know that labor costs are
$307,200 to produce the first 40 units. However, the company
experiences an 80% learning curve, which means that the labor
cost to produce the next 40 units will not be $307,200, but
$184,320. This is calculated as follows: The first 40 units cost
$307,200 to produce. If no learning had taken place, it would
cost twice that amount, or $614,400 to produce the first 80
units (the first 40 units plus another 40 units). However, as
there is a learning curve of 80%, the total cost for the 80 units
will be 80% of that $614,400 expected amount, or $491,520.
Since the first set of 40 units cost $307,200, the incremental
cost of producing the second set of 40 units was only $491,520
í $307,200, which equals $184,320. Variable overhead will also
be charged at $1 per direct labor dollar, or $184,320.
Therefore, the total costs of production are $708,640
($100,000 + $240,000 + $184,320 + $184,320). Adding 25% to
this, we get $885,800. B

The learning curve is calculated as the percentage of reduction

in costs that occurs when production is doubled. In looking at
the information provided, we see that the materials costs do
not have any efficiencies as production increases. For all levels
of production the materials cost is $6,000 per unit. So, ours
attention is focused on the labor. In order to produce 10 units,
the company incurred $120,000 of labor. If that same
productivity level were to continue (i.e., if no learning were
taking place), in order to produce 20 units, they would incur
$240,000 of labor costs. However, they incurred only $192,000
of labor costs, which is 80% of $240,000. And at 20 units at a
cost of $192,000, if no learning were taking place, it would
have cost $384,000 to produce a total of 40 units, including the
first 20. However, it cost only $307,200, which is 80% of
$384,000. So, every time production doubles, the company is
experiencing a learning curve of 80%. B

We need to include the first 50 units manufactured in this

analysis, since they contributed to the learning curve. So we
will analyze the cost for the first 200 units and then subtract
from that the cost for the first 50 units in order to calculate the
cost for units numbered 51 through 200, which are the units in
the second order of 150. The first doubling takes place at unit
no. 100. The second doubling takes place at unit no. 200.
Therefore, the time required for the total 200 units was 2,560
hours, calculated as follows: 1,000 hours × (.8 × 2) × (.8 × 2) =
2,560 hours for 200 units. 2,560 hours for 200 units minus the
1,000 hours required for the first 50 units = 1,560 hours
required for the last 150 units. The next step is to calculate the
total cost for the whole 200 units and then subtract from that
the cost for the first 50 units, which is given in the problem as
$15,400. Using the costs for 50 units provided in the problem,
we can calculate the variable costs for 200 units as follows:
Direct Materials cost per unit is $1,500 ÷ 50 units, or $30 per
unit. Therefore, for 200 units, the total direct materials cost
would be 30 × $200, or $6,000. Direct labor is $8.50 per hour