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    Costing of A 100-Unit Batch of CS - 29 Carburetors:: Department Hours (%) Rate (In $) Total ($)

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    SRISHTI ARORA
    1) The document summarizes the costing of various production activities under the present single cost center method versus a proposed five cost center method for a plant. 2) For custom work, spare parts production, and work done for other divisions, the proposed five cost center method yields higher estimated costs compared to the present single cost center method. This is because the products spend more time in higher cost departments under the proposed method. 3) However, if the plant is treated as a single cost center, events like adding a new machine in one department can affect costs across all departments and products. The five cost center method reflects departmental costs more accurately.

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    Costing of A 100-Unit Batch of CS - 29 Carburetors:: Department Hours (%) Rate (In $) Total ($)

    Uploaded by

    SRISHTI ARORA
    39 views11 pages
    1) The document summarizes the costing of various production activities under the present single cost center method versus a proposed five cost center method for a plant. 2) For custom work, spare parts production, and work done for other divisions, the proposed five cost center method yields higher estimated costs compared to the present single cost center method. This is because the products spend more time in higher cost departments under the proposed method. 3) However, if the plant is treated as a single cost center, events like adding a new machine in one department can affect costs across all departments and products. The five cost center method reflects departmental costs more accurately.

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    Solutions_Huron_Automotive

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    1) The document summarizes the costing of various production activities under the present single cost center method versus a proposed five cost center method for a plant. 2) For custom work, spare parts production, and work done for other divisions, the proposed five cost center method yields higher estimated costs compared to the present single cost center method. This is because the products spend more time in higher cost departments under the proposed method. 3) However, if the plant is treated as a single cost center, events like adding a new machine in one department can affect costs across all departments and products. The five cost center method reflects departmental costs more accurately.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    39 views11 pages

    Costing of A 100-Unit Batch of CS - 29 Carburetors:: Department Hours (%) Rate (In $) Total ($)

    Uploaded by

    SRISHTI ARORA
    1) The document summarizes the costing of various production activities under the present single cost center method versus a proposed five cost center method for a plant. 2) For custom work, spare parts production, and work done for other divisions, the proposed five cost center method yields higher estimated costs compared to the present single cost center method. This is because the products spend more time in higher cost departments under the proposed method. 3) However, if the plant is treated as a single cost center, events like adding a new machine in one department can affect costs across all departments and products. The five cost center method reflects departmental costs more accurately.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 11

    Costing of a 100-unit batch of CS -29 carburetors:

    First Proposal
    Department Hours (%) Rate (in $) Total ($)
    Casting/Stamping 21 17 52.97 1,112.37
    Grinding 12 10 48.14 577.68
    Machining 58 46 87.52 5,076.16
    Assembly 35 28 40.19 1,406.65
    Total, proposed method 126 8,172.86
    Total, present method 126 55.96 7,050.96
    Difference 1,121.90

    Note: Indicated cost is higher under the proposed methods primarily because a CS- 29 carburetor spends a hig
    proportion of time in the highest machining department and a less-than-average proportion in the low-cost assemb
    on Exhibit 1, the "average" product spends 8%, 7%, 24%, 12% and 49% of its time respectively in the five d
    29 carburetors:
    Revised Proposal
    Rate (in $) Total ($) L o/h Total
    53.12 1,115.52 21.6 31.52 53.12
    46.75 561.00
    86.50 5,017.00
    39.14 1,369.90
    8,063.42
    55.96 7,050.96
    (16% more) 1,012.46 (14% more)

    because a CS- 29 carburetor spends a higher-than-average


    erage proportion in the low-cost assembly department.(Based
    d 49% of its time respectively in the five departments.
    Costing of spare parts for inventory:
    First Proposal
    Department Hours (%) Rate (in $) Total ($)
    Casting/Stamping 304 18 52.97 16,102.88
    Grinding 270 16 48.14 12,997.80
    Machining 1,115 66 87.52 97,584.80
    Total, proposed method 1,689 126,685.48
    Total, present method 1,689 55.96 94,516.44
    Difference 32,169.04

    Note: Indicated cost is higher under the proposed methods primarily because spares do not pass through the lo
    department, and because they spend a higher-than-average proportion of time in the machining depar
    entory:
    Revised Proposal
    Rate (in $) Total ($)
    53.12 16,148.48
    46.75 12,622.50
    86.50 96,447.50
    125,218.48
    55.96 94,516.44
    (34% more) 30,702.04 (32% more)

    ause spares do not pass through the low-cost assembly


    portion of time in the machining department.
    Costing of work done for other divisions:
    First Proposal
    Department Hours (%) Rate (in $) Total ($)
    Casting/Stamping 674 20 52.97 35,701.78
    Grinding 540 16 48.14 25,995.60
    Machining 2,158 64 87.52 188,868.16
    Total, proposed method 3,372 250,565.54
    Total, present method 3,372 55.96 188,697.12
    Difference 61,868.42

    Note: The difference in indicated cost arises for the same reasons as given above for spare parts.

    The differences between the costs that result from the two proposed methods are not so great as the diff
    present method and either proposal. This is because the actual average overhead cost per hour in each de
    Q2. (Exhibit 2) did not differ greatly from the predetermined rates in Exhibit 4.

    The machining department costs dominate all three calculations , and the overhead rate difference there
    versus $ 61.50).Of course, whether the same would be true for months other than July depends on the va
    volumes from the normal volume in those other months.

    All three of these examples cited show that the present method gives lower costs than those under the
    However, it should be noted that some products are being overvalued by the present system. It is reason
    there are some products that require a relatively large amount of assembling time. Such products would
    system, costed at more than their costs under the proposed systems. Although some students usually ove
    that total production costs are not changed by a decision to use five cost centers instead of one, so if the
    the costs of some activities, of necessity some activities will show lower costs with five cost
    visions:
    Revised Proposal
    Rate (in $) Total ($)
    53.12 35,802.88
    46.75 25,245.00
    86.50 186,667.00
    247,714.88
    55.96 188,697.12
    (33% more) 59,017.76 (31% more)

    or spare parts.

    ods are not so great as the differences between the


    rhead cost per hour in each department in July

    verhead rate difference there is only 1.7% ($62.52


    er than July depends on the variations in monthly

    wer costs than those under the proposed methods.


    the present system. It is reasonable to assume that
    ling time. Such products would, under the present
    ough some students usually overlook this, the fact is
    centers instead of one, so if the proposal increases
    how lower costs with five cost centers.
    a. Plant as a single cost center: Amount in $
    Labor cost in custom work reduced by 30 percent 24,499
    Reduced labor cost for the plant: 633,949
    Overhead is:
    Increased by new depreciation : $400,000/60 months = 6,667
    Decreased by variable costs with reduced labor:
    (10% *$40.48 *3712 hours) *30% = 4,508
    Net increase in overhead 2,159
    Total overhead becomes $1,099,323 + $2,159 1,101,482
    Total labor cost 633,949
    Total cost becomes 1,735,431

    Total hours become 31,412 - (3,712*30%) = 30,298 hours


    Plant-wide rate per hour is $1,735,431/30,298 hours = $57.28
    Custom work costs if entire plant is treated as a single cost center:
    Prior to new machine: 3,712 hrs @ $55.96 207,724
    After new machine: 2,598 hrs @ $57.28 148,813
    Net decrease of 28%, or in total dollars 58,910

    b. Treating each department as a cost center:


    Present overhead is $40.48 * 3,712 hours 150,262
    Add: Additional overhead (net) 2,159
    New total custom work overhead 152,421
    New total hours: 3,712 * 70% = 2598 hrs.
    New hourly overhead rate:$ 152,421/2,598 58.67
    Labor hourly rate 22.00
    New custom work hourly rate 80.67
    Custom work costs using five cost center approach:
    Prior to new machine: 3,712 hrs. @ $62.48 231,926
    After new machine: 2,598 hrs. @ $80.67 209,581
    Net decrease of 9.6%, or in total dollars 22,345

    c. The calculations are shown above. Note that if there is only one cost center, the purchase of a new ma
    results in a substantial decrease in the cost of custom carburetors and fuel injectors; whereas if there are
    cost centers, the purchase of the machine results in significantly less change in the cost of items going thr
    the custom work department. This is an interesting phenomenon. The proposed system reflects mor
    accurately what has actually happened to costs. Furthermore, under the single cost center, an event in
    department ,(such as the purchase of the machine in custom work) can have repercussions on the cost
    other departments, and indeed can even affect the cost of products that do not pass through custom wo
    Working Notes

    81664 30% 24499


    658448 633949

    enter, the purchase of a new machine


    el injectors; whereas if there are five
    nge in the cost of items going through
    e proposed system reflects more
    e single cost center, an event in one
    have repercussions on the costs of
    do not pass through custom world.
    CS 29
    Present method($) First proposed method($)
    Materials 4200 4200
    Labour and overhead 8172.86
    Total cost 4200 12372.86
    Units 100 100
    Cost per unit 42.00 123.73
    Selling price per unit 113 113
    Profit (+)/ Loss(-) per unit 71.00 -10.73

    So price should be increased.


    Calculation of cost per unit for CS 30 using first proposed costin

    Materials and parts


    Labour and overhead: Hours reqd. Rate
    Casting and stamping 12 52.97
    grinding 7 48.14
    machining 17 87.52
    assembly 35 40.19
    Total labour and overhead
    Total cost
    Units
    Cost per unit
    Selling price per unit
    Loss per unit

    Better to offer CS 30 model.


    for CS 30 using first proposed costing method
    CS 30 CS 29
    Amount ($)
    8000

    635.64
    336.98
    1487.84
    1406.65
    3867.11
    11867.11
    100
    118.6711 123.73
    113 113
    -5.67110000000001 -10.7286

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