Woodruff Company is currently producing a snowmobile that uses five specialized parts. Engineering has proposed replacing these specialized parts with commodity parts, which will cost less and can be purchased in larger order quantities. Current activity capacity and demand (with specialized parts required) and expected activity demand (with only commodity parts required) are provided. Activities Activity Driver Activity Capacity Current Activity Demand Expected Activity Demand Material usage Number of parts 200,000 200,000 200,000 Installing parts Direct labor hours 20,000 20,000 16,000 Purchasing parts Number of orders 7,600 6,498 3,990 Additionally, the following activity cost data are provided: Material usage: $11 per specialized part used; $27 per commodity part; no fixed activity cost. Installing parts: $21 per direct labor hour; no fixed activity cost. Purchasing parts: Four salaried clerks, each earning a $47,
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.
Woodruff Company is currently producing a snowmobile that uses five specialized parts. Engineering has proposed replacing these specialized parts with commodity parts, which will cost less and can be purchased in larger order quantities. Current activity capacity and demand (with specialized parts required) and expected activity demand (with only commodity parts required) are provided.
| Activities | Activity Driver | Activity Capacity |
Current Activity Demand |
Expected Activity Demand |
| Material usage | Number of parts | 200,000 | 200,000 | 200,000 |
| Installing parts | Direct labor hours | 20,000 | 20,000 | 16,000 |
| Purchasing parts | Number of orders | 7,600 | 6,498 | 3,990 |
Additionally, the following activity cost data are provided:
Material usage: $11 per specialized part used; $27 per commodity part; no fixed activity cost.
Installing parts: $21 per direct labor hour; no fixed activity cost.
Purchasing parts: Four salaried clerks, each earning a $47,000 annual salary; each clerk is capable of processing 1,900 purchase orders. Variable activity costs: $1.00 per purchase order processed for forms, postage, etc.
Required:
1. Calculate the cost reduction produced by using commodity parts instead of specialized parts. Enter your answers as positive amounts. If required, round your answers to the nearest cent.
| Material usage cost reduction | $fill in the blank |
| Labor usage cost reduction | fill in the blank |
| Purchasing cost reduction | fill in the blank |
| Total savings | $fill in the blank |
2. Suppose that 19,000 units are being produced and sold for $8,400 per unit and that the price per unit will be reduced by the per-unit savings. What is the new price for the configured product? If required, round your intermediate calculations and final answer to the nearest cent.
$fill in the blank
3. What if the expected activity demand for purchase orders was 3,230? How would this affect the answers to Requirements 1 and 2? If required, round your intermediate calculations and final answers to the nearest cent.
| Total savings | Increase | by | $fill in the blank | to | $fill in the blank |
| New price | Decrease | by | $fill in the blank | to | $fill in the blank |
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