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Stanley Cycle Essay

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Stanley Cycle Company

Julia Mackenzie, Colin Robinson,
Jason Monaghan and Justin Corby
Managerial Accounting I
For Winston Marcellin

George Brown College
April 11, 2012 1. Introduction to Stanley Cycle

Stanley Cycle Company is a motorcycle manufacturer that deals with two subassembly lines. Their two lines are JY-63 and RX-67. The two lines are both mechanically complex, and require machining, assembly and inspection.

Stanley receives raw materials to be used in the production of these two items, and uses a First-In, First-Out inventory system. They are currently using a traditional costing method for the two products, which applies overhead based on a single cost driver. In Stanley’s case, the cost driver is …show more content…

This rate is largely based on the volume of product manufactured, and with the growing application of engineering, machining and other costs related to products, may distort the actual cost of manufacturing a product.

Activity Based Costing is a two stage process. First, one must identify the significant activities involved in the production of each product, called pools. In Stanley’s case, the activities are material handling, inspection, machining and assembly. Then overhead activities are assigned to each activity, making up the activity-cost pool. The second stage of AB Costing is to identify the appropriate cost driver for each pool and determine the pool rate. These pool rates are used to more accurately determine the costs associated with each product.

II) III) Material Handling5,000 unitsJY-63 – 5 parts/unitRX – 67 – 10 parts/unit($113,208 x 1.06) / [(5 x 5,000) + (10 x 5,000)]= $1.60/part | InspectionInspection HoursJY-63 – 5,000 hoursRX – 67 – 7,500 hours($235,850 x 1.06) / (5,000 + 7,500)= $20.00/hour | MachiningMachine HoursJY – 63 – 15,000RX – 67 – 30,000($849,056 x 1.06) / (15,000 + 30,000)= $20.00/hour | AssemblyAssembly HoursJY – 63 – 6,000RX – 67 – 5,500($433,962 x 1.06) / (6,000 + 5500)=$40.00/hour | | |

| JY-63 | RX-67 | | Estimated
20x5
Product
Cost |

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