Activity-Based Life-Cycle Costing Kagle design engineers are in the process of developing a new “green” product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $600 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: $110 per direct labor hour Material usage rate: $15 per part ABC system: Labor usage: $20 per direct labor hour Material usage (direct materials): $25 per part Machining: $80 per machine hour Purchasing activity: $150 per purchase order Setup activity: $3,100 per setup hour Warranty activity: $550 per returned unit (usually requires extensive rework) Customer repair cost: $30 per repair hour (average) Activity and Resource Information (annual estimates) Design A Design B Units produced 20,000 20,000 Direct material usage 330,000 parts 305,000 parts Labor usage 55,000 hours 125,000 hours Machine hours 55,000 65,000 Purchase orders 2,500 2,000 Setup hours 650 250 Returned units 1,200 300 Repair time (customer) 2,200 600 3. What if the post-purchase cost was an environmental contaminant and amounted to $15 per unit for Design A and $40 per unit for Design B? Compute the Post-purchase cost for each design. Post-Purchase Cost Design A $fill in the blank Design B $fill in the blank
Activity-Based Life-Cycle Costing
Kagle design engineers are in the process of developing a new “green” product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $600 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit- and activity-based accounting information (made possible by a recent pilot study producing the activity-based data).
Unit-based system:
Variable conversion activity rate: $110 per direct labor hour
Material usage rate: $15 per part
ABC system:
Labor usage: $20 per direct labor hour
Material usage (direct materials): $25 per part
Machining: $80 per machine hour
Purchasing activity: $150 per purchase order
Setup activity: $3,100 per setup hour
Warranty activity: $550 per returned unit (usually requires extensive rework)
Customer repair cost: $30 per repair hour (average)
|
Activity and Resource Information (annual estimates) |
||||
| Design A | Design B | |||
| Units produced | 20,000 | 20,000 | ||
| Direct material usage | 330,000 | parts | 305,000 | parts |
| Labor usage | 55,000 | hours | 125,000 | hours |
| Machine hours | 55,000 | 65,000 | ||
| Purchase orders | 2,500 | 2,000 | ||
| Setup hours | 650 | 250 | ||
| Returned units | 1,200 | 300 | ||
| Repair time (customer) | 2,200 | 600 |
3. What if the post-purchase cost was an environmental contaminant and amounted to $15 per unit for Design A and $40 per unit for Design B? Compute the Post-purchase cost for each design.
| Post-Purchase Cost | |
| Design A | $fill in the blank |
| Design B | $fill in the blank |
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