Life Force Fitness, Inc., assembles and sells treadmills. Activity-based product information for each treadmill is as follows: ETT Activity-Base Usage (hrs. per unit) Activity Rate per Hour Activity Motor assembly Activity Cost $30.00 1.50 $20 Final assembly Testing 1.00 18 18.00 0.25 22 5.50 Rework 0.40 22 8.80 Moving Activity cost per unit 3.00 $65.30 0.20 15 All of the activity costs are related to labor. Management must remove $2.00 of activity cost from the product in order to remain competitive. Rework involves disassembling and repairing a unit that fails testing. Not all units require rework, but the average is 0.40 hour per unit. Presently, the testing is done on the completed assembly; but much of the rework has been related to motors, which can be tested independently prior to adding the motor to the treadmill during final assembly. Thus, motor issues can be diagnosed and solved without having to disassemble the complete treadmill. This change will reduce the average rework per unit by one-quarter. a. Determine the new activity cost per unit under the rework improvement scenario. If management had the choice of doing the rework improvement in (a) or cutting the moving activity in half by improving the product flow, which decision should be implemented? Why? b.
Life Force Fitness, Inc., assembles and sells treadmills. Activity-based product information for each treadmill is as follows: ETT Activity-Base Usage (hrs. per unit) Activity Rate per Hour Activity Motor assembly Activity Cost $30.00 1.50 $20 Final assembly Testing 1.00 18 18.00 0.25 22 5.50 Rework 0.40 22 8.80 Moving Activity cost per unit 3.00 $65.30 0.20 15 All of the activity costs are related to labor. Management must remove $2.00 of activity cost from the product in order to remain competitive. Rework involves disassembling and repairing a unit that fails testing. Not all units require rework, but the average is 0.40 hour per unit. Presently, the testing is done on the completed assembly; but much of the rework has been related to motors, which can be tested independently prior to adding the motor to the treadmill during final assembly. Thus, motor issues can be diagnosed and solved without having to disassemble the complete treadmill. This change will reduce the average rework per unit by one-quarter. a. Determine the new activity cost per unit under the rework improvement scenario. If management had the choice of doing the rework improvement in (a) or cutting the moving activity in half by improving the product flow, which decision should be implemented? Why? b.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Life Force Fitness, Inc., assembles and sells treadmills. Activity-based product information for
each treadmill is as follows:
ETT
Activity-Base Usage
(hrs. per unit)
Activity Rate
per Hour
Activity
Motor assembly
Activity Cost
$30.00
1.50
$20
Final assembly
Testing
1.00
18
18.00
0.25
22
5.50
Rework
0.40
22
8.80
Moving
Activity cost per unit
3.00
$65.30
0.20
15
All of the activity costs are related to labor. Management must remove $2.00 of activity
cost from the product in order to remain competitive.
Rework involves disassembling and repairing a unit that fails testing. Not all units require
rework, but the average is 0.40 hour per unit. Presently, the testing is done on the completed
assembly; but much of the rework has been related to motors, which can be tested independently
prior to adding the motor to the treadmill during final assembly. Thus, motor issues can be
diagnosed and solved without having to disassemble the complete treadmill. This change will
reduce the average rework per unit by one-quarter.
a. Determine the new activity cost per unit under the rework improvement scenario.
If management had the choice of doing the rework improvement in (a) or cutting the
moving activity in half by improving the product flow, which decision should be implemented? Why?
b.
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