Price Estimation, Math Problem Example

Question 3

Part A

Direct Labor

Fluffs = 80,000 * 0.10 = 8,000 hrs.

Crinkles = 60,000 * 0.20 = 12,000 hrs.

Snaps = 20,000 * 1.00 = 20,000 hrs.

Total Labor Hrs. = 8,000 + 12,000 + 20,000 = 40,000 hrs.

Budgeted Labor Costs

40,000 * 4.50 = $ 180,000

Budgeted Material Costs

Fluffs = 80,000 * 0.85 = $ 68,000

Crinkles = 60,000 * 0.40 = $ 24,000

Snaps = 20,000 * 0300 = $ 6,000

Total Labor Hrs. = 68,000 + 24,000 + 6,000 = $ 98,000

Direct Costs

Material Costs + Direct Labor = 98,000 + 180,000 = $278,000

Indirect Costs = $ 420,000

Overhead Rate = Overhead Costs / Direct Costs = 420,000 / 278,000 = 1.51

Part B

Product Cost = Total Manufacturing Costs / Units of Production Output

Indirect Costs = 420,000 / 160,000 = $2.63 per unit

Labor Costs = 180,000 / 160,000 = $1.13 per Unit

Cost Per Unit

Fluff

Labor + Indirect + Material = 1.13 + 2.63 + 0.85 = $4.61

Crinkles

Labor + Indirect + Material = 1.13 + 2.63 + 0.40 = $4.16

Snaps

Labor + Indirect + Material = 1.13 + 2.63 + 0.30 = 4.06

Part C

Bugaboo’s use of a plant-wide factory overhead rate does distort May’s product costs. This is because the overhead rate that the company has to allocate is a large amount this is because the products are highly differentiated and as such different allocation bases need to be employed

Question 4

Part A

Old Manufacturing Process

Cutting – 4 minutes per Wreath (done at once for the whole batch)

Assembly –6 minutes per Wreath (done at once for the whole batch)

Decoration – 7 minutes per Wreath (done one wreath at a time)

Moving – 5 minutes per wreath (done at once for the whole batch)

Non-Value Added Time = 5 minutes

Value Added Time = 4 min + 6 min + (7minutes x 12 wreaths) = 94 minutes per batch

Lead Time = 94 minutes + 5 minutes = 99 minutes

New Manufacturing Process

Cutting – 3 minutes per Wreath (done at once for the whole batch)

Assembly – 4 minutes per Wreath (done at once for the whole batch)

Decoration – 7 minutes per Wreath (done one wreath at a time)

Moving – 5 minutes per wreath (done at once for the whole batch)

Non-Value Added Time = 5 minutes

Value Added Time = 3 min + 4 min + (7minutes x 8 wreaths) = 63 minutes per batch

Lead Time = 63 minutes + 5 minutes = 68 minutes

Part B

In order for management to increase efficiency amid the introduction of a new product, the company ought to focus on the value-added production of the goods while at the same time mitigating down time for the value-adding activities within the production process. By increasing the capacity by concentrating on improving the value based activities, the company can increase the plant usage to a desirable level.

The main principle from the JIT manufacturing practice that the company should employ is focusing production on orders. This means producing only when customers make orders. This is essential in freeing up capacity so that the firm can produce only when there is market for the productand not accumulate stock or inventory which is not cost efficient.