Lutz, Inc. produces three products: Quality, Superior, and Superb. The Lutz cost accounting system applied Conversion Costs using a Plant-Wide Application Rate using Direct Labor Hours as the Cost Driver. Lutz is thinking of employing an ABC system for Conversion Costs. Lutz concluded that its plant had six activities with the following Cost Drivers and costs budgeted for the upcoming year: Activity Area Budgeted Costs Cost Driver Material Handeling $258,400 Number of Parts Production Scheduling $114,000 Number of Orders Setups $160,000 Number of Setups Machinery Cost and Maint $3,510,000 Machine Hours Finishing $1,092,000 Direct Labor Hours Packaging/Shipping $190,000 Number orders Shipped TOTAL $5,324,400 It is estimated that there will be 54,600 Direct Labor Hours in the upcoming year The following information summerizes Lutz' Projections of the Cost Drivers listed above by Product type Cost Driver Quality Superior Superb Units to be produced 10,000 5,000 800 # of parts per unit 30 50 120 Production orders 300 70 200 Production Setups 100 50 50 Machine Hrs per unit 7 7 15 DLH per unit 2 5 12 Orders shipped 1,000 2,000 800 Direct Labor $69.11 $72.50 $83.22 Direct Materials $83.00 $97.00 $115.00 Lutz uses a 30% markup above cost to bid for their projects. What are the costs they currently use with the Plant-wide model? What Should the prices be if we used ABC? Discussion topic: What does the difference suggest we might be doing wrong with our bids? And if you were the CFO what activity area would you look to improve and give a few generic examples of options for improvement.

Lutz, Inc. produces three products: Quality, Superior, and Superb. The Lutz cost accounting system applied Conversion Costs using a Plant-Wide Application Rate using Direct Labor Hours as the Cost Driver. Lutz is thinking of employing an ABC system for Conversion Costs. Lutz concluded that its plant had six activities with the following Cost Drivers and costs budgeted for the upcoming year: Activity Area Budgeted Costs Cost Driver Material Handeling $258,400 Number of Parts Production Scheduling $114,000 Number of Orders Setups $160,000 Number of Setups Machinery Cost and Maint $3,510,000 Machine Hours Finishing $1,092,000 Direct Labor Hours Packaging/Shipping $190,000 Number orders Shipped TOTAL $5,324,400 It is estimated that there will be 54,600 Direct Labor Hours in the upcoming year The following information summerizes Lutz' Projections of the Cost Drivers listed above by Product type Cost Driver Quality Superior Superb Units to be produced 10,000 5,000 800 # of parts per unit 30 50 120 Production orders 300 70 200 Production Setups 100 50 50 Machine Hrs per unit 7 7 15 DLH per unit 2 5 12 Orders shipped 1,000 2,000 800 Direct Labor $69.11 $72.50 $83.22 Direct Materials $83.00 $97.00 $115.00 Lutz uses a 30% markup above cost to bid for their projects. What are the costs they currently use with the Plant-wide model? What Should the prices be if we used ABC? Discussion topic: What does the difference suggest we might be doing wrong with our bids? And if you were the CFO what activity area would you look to improve and give a few generic examples of options for improvement.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

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Lutz, Inc. produces three products: Quality, Superior, and Superb. The Lutz cost accounting system applied Conversion Costs using a Plant-Wide Application Rate using Direct Labor Hours as the Cost Driver. Lutz is thinking of employing an ABC system for Conversion Costs.


Lutz concluded that its plant had six activities with the following Cost Drivers and costs budgeted for the upcoming year:

Activity Area	Budgeted Costs		Cost Driver

Material Handeling	$258,400		Number of Parts
Production Scheduling	$114,000		Number of Orders
Setups	$160,000		Number of Setups
Machinery Cost and Maint	$3,510,000		Machine Hours
Finishing	$1,092,000		Direct Labor Hours
Packaging/Shipping	$190,000		Number orders Shipped
TOTAL	$5,324,400


It is estimated that there will be 54,600 Direct Labor Hours in the upcoming year

The following information summerizes Lutz' Projections of the Cost Drivers listed above by Product type

Cost Driver	Quality	Superior	Superb

Units to be produced	10,000	5,000	800
# of parts per unit	30	50	120
Production orders	300	70	200
Production Setups	100	50	50
Machine Hrs per unit	7	7	15
DLH per unit	2	5	12
Orders shipped	1,000	2,000	800

Direct Labor	$69.11	$72.50	$83.22
Direct Materials	$83.00	$97.00	$115.00

Lutz uses a 30% markup above cost to bid for their projects. What are the costs they currently use with the Plant-wide model?

What Should the prices be if we used ABC?

Discussion topic: What does the difference suggest we might be doing wrong with our bids? And if you were the CFO what activity area would you look to improve and give a few generic examples of options for improvement.

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