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Use the information in Exhibit 2 to calculate the product costs per unit for valves, pumps and flow controllers that are reported in Exhibit 1. Show your calculations.
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Answer:
Calculate the product cost per unit:
Product cost per unit : It is the material cost, labor cost, and the overheads that are incurred on a single unit of the product.
The product cost per unit using Exhibit 2 can be calculated using the following spreadsheet:
Thus, the unit cost calculated for valves is $37.56 , a pump is $63.12 , and a flow controller is $56.50.
What is your estimate of the current "contribution margins" for the three products. Show your calculations and explain them.
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The estimated contribution margin for the three products can be calculated using the following strategy:
Contribution margin:
It is the difference between the revenue and the variable cost.
Referring to the exhibits 1 and 2 the contribution is calculated as below:
The contribution for valves is calculated as $37.76 , for pumps it is $53.21 and flow controller is $68.19.
Use the information in Exhibit 2 to calculate the revised product costs mentioned by Mary Ford on page 3.
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Calculate the revised product costs using the following spreadsheet:
The revised standard costs for valves, pumps and flow controllers are calculated as
and
, respectively.
Use the information in Exhibits 2 and 3 to calculate product costs for valves, pumps, and flow controllers under an "ABC" approach (Activity Based Costing).
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If, in the following month, quantities produced and sold, activities, and costs were all at standard, how much higher or lower would the reported net income be under the ABC system than under the present system Why
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Prepare a table which compares product profitability across the three products under the three product costing systems. Which system do you favor Why
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Use the information in the ABC analysis to reevaluate the "JIT" purchasing policy regarding flow controllers. Show your analysis. What is you conclusion
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What recommendations do you have for management Why Be specific. Support your recommendations with explicit analysis.
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