1. OLEX Company 5.

ALLAIRE Corporation
a. Using standard costs, the total contribution expected
INCOME (LOSS) PROBABILITY EXPECTED VALUE
P (70,000) .10 (7,000) in 2011 by Allaire Corporation from the TV Board is
10,000 .20 2,000 Totals
60,000 .40 24,000 Per Unit For 65,000 units
100,000 .20 20,000 Revenue 150 9,750,000
140,000 .10 14,000 Direct material 80 5,200,000
TOTA L 53,000 Material overhead
(10% of material) 8 520,000
2. LANEDO Company Direct labor
($14 x 1.5 hours) 21 1,365,000
Throughput per hour = Total units manufactured = 50,000 Variable overhead
Goods units manufactured 40,000 ($4x 1.5 hours)* 6 390,000
= 1.25 Machine time ($10 x.5) 5 325,000
Total cost 120 7,800,000
Process quality yield = good units / total units Unit contribution 30
= 40,000/50,000 = 80% Total contribution (65,000 x 30) $ 1,950,000
*Variable overhead rate
3. $1,120,000 + 280,000 hours = $4 per hour.
Cost driver Budgeted Budgeted act level
No. of P 20,000 200 100
setups b. Using standard costs, the total contribution expected
No. of 130,000 6,500 20 in 2011 by Allaire Corporation from the PC Board
inspections Totals for
No. of 80,000 8,000 10 Per Unit 40,000 units
materials Revenue 300 12,000,000
moves Direct material 140 5,600,000
Engineering 50,000 1,000 50 Material overhead
hours (10% of material) 14 560,000
Direct labor
a. Number of setups------------------1 * 100 = 100 ($14x4 hours) 56 2,240,000
Number of inspection------------20 * 20 = 400 Variable overhead
Number of material move-------30 * 10 = 300 ($4 x 4 hours)* 16 640,000
Engineering hours-----------------10 * 50 = 500 Machine time
JOB 101 (Overhead Cost) ------------------1,300 ($10 x 1.5) 15 600,000
Total cost 241 9,640,000
b. Direct materials-------------------------------------------12,000 Unit contribution 59
Direct Labor--------------------------------------------------2,000 Total contribution (40,000 x 59) 2,360,000
Overhead: JOB 102 1,120,000 + 280, 000 hours = $4 per hour.
Number of setups------------------2 * 100 = 200
Number of inspection------------10 * 20 = 200 Procurement 400,000 / 4,000,000 .10 per part
Production scheduling 220,000 / 110,000 2.00 per board
Number of material move-------10 * 10 = 100
Packaging & shipping 440,000 / 110,000 4.00 per board
Engineering hours-----------------50 * 50 = 2500 3,000 Machine set-ups 446,000 / 278,750 1.60 per board
Divide by Units Completed-----------------------------------/50 Hazardous waste disposal 48,000 / 16,000 3.00 per pound
Unit Cost----------------------------------------------------------340 Quality control 560,000 / 160,000 3.50 per inspection
General supplies 66,000 / 110,000 .60 per board
4. ACTION Company Machine insertion 1,200,000 / 3,000,000 .40 per part
a. Predetermined overhead rate = Manual insertion 4,000,000 / 1,000,000 4.00 per part
Wave soldering 132,000 / 110,000 1.20 per board
Estimated overhead cost / Estimated direct labor
c. Shown below are the calculations of the cost drivers
hours
= 92,023 / 340 =270.66 per direct labor hours
Using activity-based costing, the total contribution expected
in 2011 by Allaire Corporation from the TV
b. Overhead cost per unit (Product B) =
Totals for
Predetermined rate x direct labor hours
Per Unit 65,000 units
= 270.66 x 0.2 = 54.13 per unit
Revenue 150 9,750,000
Direct material 80 5,200,000
c. Predetermined overhead rate for Act. 1 (ABC) Material overhead
Activity 1 (Est. Overhead) / Expected activity Procurement (.10x25) 2.50 162,500
= 14, 487 / 1,100 = 13.17 Production scheduling 2 30,000
Packaging & shipping 4 260,000
d. Overhead cost per unit product A (ABC) Variable overhead
Machine set-ups (1.60x2) 3.20 208,000
Act. Cost Pool Est. Overhead activity Overhead rate Waste disposal (3 x .02) .06 3,900
Activity 1 14,487 1,100 13.17 Quality control 3.50 227,500
Activity 2 64,800 3,000 21.60 General supplies .60 39,000
Gen. factory 12,736 340 37.46 Manufacturing
Machine insertion (.40 x 24) 9.60 624,000
=69,575 / 800 Manual insertion 4 260,000
Amount
=86.97 Wave soldering 1.20 78,000
Activity 1 500 13.17 6,585
Total cost 110.66 7,192,900
Activity 2 2,500 21.60 54,000
Unit contribution 39.34
Gen.factory 240 37.46 8,990
Total contribution 2,557,100
Total 69,575
 d. Using activity-based costing, the total contribution 45. CUTE corporation
expected in 2011 by Allaire Corporation from the PC
A. Total attempted units-------------6,000,000
Totals for Goods units manuf actured------4,800,000
Per Unit 40,000 units Defective units 1,200,000
Revenue 300 12,000,000
Direct material 140 5,600,000 B. Manufacturing cycle efficiency
Material overhead Value-added processing time / total hours
Procurement (.10x55) 5.50 220,000 = 600 / 800 = .75
Production scheduling 80,000
Packaging & shipping 160,000
C. Process productivity
Variable overhead
= Good units manufactured / total hours
Machine set-ups (1.60x3) 4.80 192,000
Waste disposal (3 x .35) 1.05 42,000 = 4,800,000 / 800 = 6,000
Quality control (3.50 x 2) 7.00 280,000
General supplies .60 24,000
D. Process quality yield
Manufacturing
Machine insertion (.40 x 35) 14.00 560,000
Manual insertion (4 x 20) 80 3,200,000
Wave soldering 1.20 48,000 E. Hourly throughput
Total cost 260.15 10,406,000 Good units’ manufactured / value-added processing time
Unit contribution 39.85 = 4,800,000 / 600 = 8,000
Total contribution 1,594,000

46. Quality cost index

= (total quality cost / direct labor cost) x 100
42. Manufacturing cycle efficiency = (*120,000 / 300,000) x 100 = 40
= value-added production time (Process time)
*Total cycle time *Total quality cost: Prevention ---------20,000
= 4 / 12 = 33.33% Appraisal------------30,000
Internal failure-----60,000
*Total Cycle time = 12 Order received to start-------10 External failure-----10,000 120,000
Process time---------4 Cycle time------------------------12
Inspection time---1.5 Total delivery cycle time -----22 47. Raw material account, closing balance
Queue time--------4.5 Raw materials, operating balance--------500
Move time------------2 Raw materials purchased-----------------4,600
Cost of goods sold, materials---------- (*4,090)
43. ROMMEL Company Raw materials, Balance 1,010
Year 1 Year 2
Prevention cost *cost of goods sold at standard cost -----8,998
Quality Audits 45,000 60,000 Divide by total cost------------------------------22
Training 40,000 85,000 80,000 140,000 Cost per unit ----------------------------------409 x 10 = 4,090
Appraisal cost
Statistical process 80,000 200,000 48. Throughput return per production hour of the bottleneck
Inspection and testing 100,000 180,000 150,000 250,000 Resource = (selling price – material cost) / hours
Internal failure cost = (24.99 – 8.87) / (60/6.5) = 148.8
Rework 100,000 70,000
Spoilage 80,000 180,000 55,000 125,000
External failure cost 49.
Warranties 180,000 80,000 Wall mirrors – 25 units x 200 hours per unit = 5,000 hrs
Est. customer losses 800,000 980,000 450,000 530,000 Specialty windows – 25 units x 200 hours per unit= 5,000 hrs
Total hours 10,000 hrs
44. GAGNON company
Prevention costs Systems development...............29,000 Budgeted materials handling costs 50,000
Quality training.....................................................25,000 Divided by total hours ÷ 10,000
Total................................................................................54,000 Materials handling cost per hour 5
Appraisal costs Hours per unit x 200
Test and inspection of incoming materials...........73,000 Costs allocated to one unit 1,000
Supervision of testing and inspection activities....24,000
Maintenance of test equipment...........................18,000 Wall Mirrors: 25 mirrors x 5 moves = 125 moves
Total..............................................................................115,000 Specialty Mirrors: 25 mirrors x 15 moves = 375 moves
Internal failure costs Total Material Handling Moves 500
Disposal of defective products..............................55,000 ga
Net cost of scrap....................................................23,000 Specialty Mirrors: 15 x 100 = 1,500
Total................................................................................78,000
External failure costs 50. Direct materials-----------------------1,000
Warranty repairs and replacements......................58,000 Direct labor----------------------------4,000
Product recalls........................................................91,000 Maintenance (500 x 4) -------------2,000
Total..............................................................................149,000 Inspection (100 x 4) -------------------400
Total quality cost.......................................................396,000 Total 7,400
Activity rate: Inspection (150,000 / 1,500) = 100/inspection
Maintenance (100,000 / 25,000) = 4/MH

The company is able to charge 125% of the full cost for the
order. The full cost will include $100,000 of fixed costs and
$240,000 of materials costs. In addition, there will be labor required for 200 units less 1,000 hours required for the
costs, However, we need to determine what those labor costs first 50 units = 960 hours required for the last 150 units.
will be. We can calculate that the learning curve is 80%. The 960 hours ÷ 150 units = 6.4 hours required per unit for
first 10 units produced cost $120,000 in labor. If no learning the last 150 units. C
had taken place, the first 20 units would have cost $240,000 in
labor. However, the labor cost for the first 20 units was
$192,000. By dividing $192,000 by $240,000, we calculate that
the learning curve is 80%. We know that labor costs are
$307,200 to produce the first 40 units. However, the company
experiences an 80% learning curve, which means that the labor
cost to produce the next 40 units will not be $307,200, but
$184,320. This is calculated as follows: The first 40 units cost
$307,200 to produce. If no learning had taken place, it would
cost twice that amount, or $614,400 to produce the first 80
units (the first 40 units plus another 40 units). However, as
there is a learning curve of 80%, the total cost for the 80 units
will be 80% of that $614,400 expected amount, or $491,520.
Since the first set of 40 units cost $307,200, the incremental
cost of producing the second set of 40 units was only $491,520
í $307,200, which equals $184,320. Variable overhead will also
be charged at $1 per direct labor dollar, or $184,320.
Therefore, the total costs of production are $708,640
($100,000 + $240,000 + $184,320 + $184,320). Adding 25% to
this, we get $885,800. B

The learning curve is calculated as the percentage of reduction

in costs that occurs when production is doubled. In looking at
the information provided, we see that the materials costs do
not have any efficiencies as production increases. For all levels
of production the materials cost is $6,000 per unit. So, our
attention is focused on the labor. In order to produce 10 units,
the company incurred $120,000 of labor. If that same
productivity level were to continue (i.e., if no learning were
taking place), in order to produce 20 units, they would incur
$240,000 of labor costs. However, they incurred only $192,000
of labor costs, which is 80% of $240,000. And at 20 units at a
cost of $192,000, if no learning were taking place, it would
have cost $384,000 to produce a total of 40 units, including the
first 20. However, it cost only $307,200, which is 80% of
$384,000. So, every time production doubles, the company is
experiencing a learning curve of 80%. B

We need to include the first 50 units manufactured in this

analysis, since they contributed to the learning curve. So we
will analyze the cost for the first 200 units and then subtract
from that the cost for the first 50 units in order to calculate the
cost for units numbered 51 through 200, which are the units in
the second order of 150. The first doubling takes place at unit
no. 100. The second doubling takes place at unit no. 200.
Therefore, the time required for the total 200 units was 2,560
hours, calculated as follows: 1,000 hours × (.8 × 2) × (.8 × 2) =
2,560 hours for 200 units. 2,560 hours for 200 units minus the
1,000 hours required for the first 50 units = 1,560 hours
required for the last 150 units. The next step is to calculate the
total cost for the whole 200 units and then subtract from that
the cost for the first 50 units, which is given in the problem as
$15,400. Using the costs for 50 units provided in the problem,
we can calculate the variable costs for 200 units as follows:
Direct Materials cost per unit is $1,500 ÷ 50 units, or $30 per
unit. Therefore, for 200 units, the total direct materials cost
would be 30 × $200, or $6,000. Direct labor is $8.50 per hour
for a total of 2,560 hours, or $21,760 for 200 units. Variable
overhead is applied on the basis of direct labor hours at the
rate of $4 per direct labor hour; so for 2,560 DL hours, variable
overhead would be $10,240. Thus, the total variable cost for
200 units is $6,000 + $21,760 + $10,240, for a total of $38,000.
Fixed overhead is applied at the rate of 10% of total variable
cost, so fixed overhead applied is 10% of $38,000, or $3,800.
The total cost for 200 units is thus $38,000 + $3,800, or
$41,800. Subtracting the cost for the first 50 units from the
total cost for the first 200 units, we get $41,800 í $15,400, or
$26,400 as the cost for units 51 through 200. C

B. Since there are two doublings, the number of hours

required for 200 units using a 70% learning curve is:
1,000 hours × (.7 × 2) × (.7 × 2) = 1,960 hours. 1,960 hours