1.

Calcualte the product cost per unit

Valves Pumps Flow controller

Direct Material 16 20 22
Direct Labor 4 8 6
Manufacturing overhead 17.55 35.10 28.08
Cost per unit $ 37.55 $ 63.10 $ 56.48

Labor = 16 per hour

Manufacturing overhead rate= 4.39 439%

Receiving 20,000
Materials Handling 200,000
Engineering 100,000
Packing and shipping 60,000
Maintance 30,000
Machine Depreciation 270,000
Set-up labor 2,688
Total 682,688

Run-labor = 155,600
2. Calculate the contribution margin

Contribution margin = Sales - variable cost

Valves Pumps Flow Controllers

Selling price 57.78 81.26 97.07
Variable cost 16 20 22
Contribution margin $ 41.78 $ 61.26 $ 75.07
3. Calculate the revised product cost mentioned by Mary Ford on Page 3

Valves Pumps Flow Controller

Materials 16 20 22
Material related overhead 7.69 9.61 10.57
Set up labor 0.02 0.05 0.48
Direct labor 4 8 6.4
Other overhead 21.30 21.30 8.52
Revised Stand cost 49.00 58.95 47.97

Material related overhead

Receiving 20000
Material Handling 200000
Total 220000

Material cost= 458000

Material related overhead rate= 0.48

Other overhead bases on Machine Hour

Machine depreciation 270000
Engineering 100000
Packing and shipping 60000
Maintenance 30000
Total 460000
Machine hour= 10800
Overhead Allocated rate= 42.59
 Valves Pumps Flow controller
Set up per pdocution run 8 8 12
Monthly production 7500 12500 4000
Run 1 5 10
Set up labor per unit 937.5 312.5 33.33
low controller
4. Calculate Using ABC

Valves Pumps Flow Controllers

Per Unit Total 7,500 Per Unit Total 12,500 Per Unit Total 4,000
Material $16.00 $120,000. 20 250000 22 88000
Labor 4 30,000.00 8 100,000.00 6.4 25,600.00
Overhead:
Set-up 0.02 128 0.05 625 0.48 1,920.00
Receiving 0.08 600 0.31 3,875.00 3.9 15,503.88
Mat’l. Handling 0.8 6,000.00 3.04 38,000.00 39 156,000.00
Pack & Ship 0.32 2,400.00 1.10 13,800.00 10.95 43,800.00
Engineering 2.66 20,000.00 2.4 30,000.00 12.5 50,000.00
Maintenance 1.4 10,500.00 1.39 17,400.00 0.53 2,100.00
Mach. Depr. 12.5 93,750.00 12.5 156,250.00 5 20,000.00
Total Overhead $17.78 $133,378. $20.79 $259,890. $72.36 $289,420.
Total Cost $37.78 $283,378. $48.79 $609,890. $100.76 $403,020.

Checking overhead 17.78 133,378.00 20.80 259,950.00 72.33 289,323.88

37.78 283,378.00 48.79 609890 100.76 403020
Sample of calculation

* Receiving for Valve => total transaction is 129 times , Valve uses 4 times so ((4/129) *20000)/7500 = 0.08
Mat handling for Pump = (200,000 *60%*19%)/12500 + (200,000*40%*19%)/12500 => info from Exhibit 3

Receiving for pump=(25/129)*20000/12500= 0.3100775194

Receiving for flow controller = (100/129)*20000/4000= 3.8759689922

Mat handling for pump= (200000*60%*19%)/12500+(200000*40%*19%)/12500= 3.04

Mat handling for flow controller= (200000*60%*78%)/4000+(200000*40%*19%)/4000= 39

Pack&Ship
Valves=(60000*4%)/7500= 0.32
Pumps = (60,000*23%)/12500= 1.10
Flow controller = (60000*73%)/4000= 10.95

Engineering
Valves=(100000*20%)/7500= 2.67
Pumps = (100000*30%)/12500 2.4
flow controller= (100000*50%)/4000= 12.5

Maintance
Valves = (30,000*35%)/7500= 1.4
Pumps= (30000*58%)/12500= 1.39
Flow controller = (30000*7%)/4000= 0.53
Machince dep.
Valves=(0.5*7500*270000)/10800/7500= 12.5
Pumps=(0.5*12500*270000)/10800/12500= 12.5
Flow controller= (0.2*4000*270000)/10800/4000= 5
Total Month
24,000 units
458000
155,600.00

2,673.00
19,978.88
200,000.00
60,000.00
100,000.00
30,000.00
270,000.00
$682,688.00
$1,296,288.

1296288.00
 Vavles Pumps Flow controller
Actual selling price 57.78 81.26 97.07
Stand cost 37.56 63.12 56.50
Gross margin 20.22 18.14 40.57
Gross margin % 35% 22% 42%

Revised cost 49.00 58.95 47.96

gross margin 8.78 22.31 49.11
gross margin % 15% 27% 51%

ABC cost 37.78 48.79 100.76

Gross margin 20.00 32.47 (3.69)
Gross margin % 35% 40% -4%