Mile High Cycles

Management had difficulties in communicating the two variances to its senior managers. The calculation of the two variances started with the standard fixed cost per ton which was derived by following formula:

Instructions: Complete a five year simulation, and answer the following questions on the actual approach you used for the simulation. You may type your answers directly on this form, but the completed document must be 2-3 pages in length (please do not change the margins). Due November 25, 11:59pm

When manifold line was dropped, the situation of 1991 in comparation to 1990 was similar to the situation of 1988 in comparation to 1989. Assume that the change of the overhead per the change of labor cost of 1988 and 1989 was the situation of 1990 and 1991 and was not changed equal to 2.7 (see table 5). Assume that the direct labor cost of 1991 for the product dropped manifolds was the direct labor cost of that product in 1990 (see table 5). The total direct material of 1991 was $33,821 (see table 6), the direct labor was $7,562; the total overhead was $61,741 and the rate of overhead per direct labor was 816% (see table 5).

* Direct Labour variance: Unfavourable by $22.000. Again, we need to find out whether this is Price and/or efficiency driven. We know that according to the accountant information, the actual price is $16,4/unit while the Standard price is $16/unit. On the other hand, the Standard Quantity is 14.000 units while the actual Quantity is 246.000/16,4=15.000 units. Therefore:

10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

B. 1. The impact of costs on the decision to move forward with the new Maui Sandal line is as follows: As the production continues, the hours needed for each batch, or individual pair, will begin to decrease. By continuing to produce this line the total labor costs will continue to decrease, but most likely, at a slower rate as more sandals are produced. This data can help the company decide employment levels, capacity, costs, and their pricing of this particular merchandise in the open market. The company predicts that it will take 1,000 labor hours for production to complete for the first batch, with 50 total batches between month 1 and month 4.

Develop and diagram an activity based cost model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes any shifts in cost and profitability?

This was favorable, but the Efficiency Variable was 100,000 unfavorable. This suggest that Competition Bike received a great price, but with the unfavorable Efficiency there were a lot of left over materials suggesting the material might not be the best quality. Direct Labor had a 150,000 Unfavorable Variance, but had a 50,000 favorable Efficiency Variance. The labor cost was up due to the high skill level needed for the bike manufacturing. The 50,000 favorable Efficiency Variance enabled the high skill labor to perform the task very efficiently. The Manufacturing Overhead had a 24,000 unfavorable Price Variance, and a 2426 unfavorable Efficiency Variance. The Advertising Cost had a 5,000 unfavorable Price Variance and a 1246 favorable Efficiency Variance. This suggest that Competition Bike spent more on Advertising in order to boost lagging sales, and the favorable Efficiency Variance shows that even though more was spent than budgeted, the money spent was efficient and worth the increase. The Transportation Out had a 3207 unfavorable Price Variance and a 2400 unfavorable Efficiency Variance. This suggest that Transportation cost were up due to increased fuel cost, and this increase in cost resulted in unfavorable Efficiency Variance due to transporting fewer bikes with increase in fuel cost.

In order to meet customer demands for higher product quality, to comply with federally-mandated environmental regulations, and to reduce production costs, HCC must spend $2,000,000 within the next three years to upgrade equipment. The upgrade is expected to result in production efficiencies that will lower material and labor costs by reducing defective products, process waste, in-process inventory, and production man-hours through simplified work processes. It has been over a decade since significant modifications were made to the production facilities. Those changes were mostly technical in nature and did not substantially alter work processes or reduce overall employment. The average productivity gain in the industry for the past five years has been 3% per year. Financing for the loan to purchase the equipment

In production costs variance chart above, Direct labor price variance(sum of direct labor variances of round, square and oval) valued at $14,913, and Oval production cost variance valued at $8,381.

3) Using the budget Data, what was the total expected cost per unit if all manufacturing and shipping overhead (both variable and fixed) were allocate to planned production? What was the actual cost per unit of production and shipping?

The cost of raw materials impacted the actual profit through the price variance and the quantity variance of the direct materials. Using the level 3 analysis, it was determined that the price variance was favorable €46 and the quantity variance was unfavorable €17 which represented a flexible budget variance of favorable €29. This impacts the profit because the Italian region was very efficient with their costs of direct materials, but the Italian region came up short in their manufacturing efficiencies as they experienced an

Problem 1(10 points). Harley-Davidson has its engine assembly plant in Milwaukee and its motorcycle assembly plant in Pennsylvania. Engines are transported between two plants using trucks, with each trip costing $1,000. The motorcycle plant assembles and sells 438 motorcycles each day. Each engine costs $500, and Harley incurs a holding cost of 20 percent per year. How many engine should Harley load onto each truck? What is the cycle inventory of engines at Harley? (Assume that they work 250 days per year)

Q.1 Compute the following quantities for the current production process as well as for Mike’s and Ike’s plans, assuming the plans are implemented as described in the case. (50 points)