Answered: artments namely X and Y. In Dep’t Y,…

Financial & Managerial Accounting

14th Edition

ISBN:9781337119207

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter18: Activity-Based Costing

Section: Chapter Questions

Problem 3ADM: Production run size and activity improvement Littlejohn, Inc. manufactures machined parts for the...

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Exercise 6-6 EVEN APPLICATION – SUCCEEDING DEPT

Astro2 Inc. uses two producing departments namely X and Y. In Dep’t Y, the second dept,

costs are applied evenly throughout the process. Prepare the cost of production report of Dept Y

using the following data for February of the current year:

WIP, beg – 6,000 units, 1⁄4 done, P19,710 (50% of which was from department X, 20% for materials,

10% labor, 20% overhead)

Received from Dep’t X – 35,000 units @ P3

Factory Costs : Materials, P20,770; Direct Labor, P8,375; FOH, P16,750

WIP, end – 8,000 units 1⁄4 done

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Production run size and activity improvement Littlejohn, Inc. manufactures machined parts for the automotive industry. The activity cost associated with Part XX-10 is as follows: Activity Activity-Base Usage Activity Rate = Activity Cost Fabrication 250 dlh 80per dlh 20,000 Setup 10 setups 80 per setup 800 Production control 10 prod, runs 30 per prod, run 300 Moving 10 moves 25 per move 250 Total activity cost per unit 21,350 Estimated units of production 500 Activity cost per unit 42.70 Each unit requires 30 minutes of fabrication direct labor. Moreover, part XX-10 is manufactured in production run sizes of 50 units. Each production run is set up, scheduled (production control), and moved as a batch of 50 units. Management is considering improvements in the setup, production control, and moving activities in order to cut the production run sizes by half. As a result, the number of setups, production runs, and mows will double from 10 to 20. Such improvements are expected to speed the companys ability to respond to customer orders. Setup is reengineered so that it takes 60% of the original cost per setup. Production control software will allow production control effort and cost per production run to decline by 60%. Moving distance was reduced by 40%, thus reducing the cost per mow by the same amount. A. Determine the revised activity cost per unit under the proposed changes. B. Did these improvements reduce the activity cost per unit? C. What cost per unit for setup would be required for the solution in (A) to equal the base solution?

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