Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Variable Cost Fixed Cost Total Cost $79 $115 $194 Rework cost per hour Repair costs Customer support cost per hour Transportation cost per load Warranty repair cost per hour 35 55 90 350 115 465 89 150 239 SpeedPrint's current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $70 more than the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000 hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000. SpeedPrint believes that even as it improves quality, it will not be able to save any of the fixed costs of re- work or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year.

Quality improvement, relevant costs, relevant revenues. SpeedPrint manufactures and sells 18,000 high-technology printing presses each year. The variable and fixed costs of rework and repair are as follows: Variable Cost Fixed Cost Total Cost $79 $115 $194 Rework cost per hour Repair costs Customer support cost per hour Transportation cost per load Warranty repair cost per hour 35 55 90 350 115 465 89 150 239 SpeedPrint's current presses have a quality problem that causes variations in the shade of some colors. Its engineers suggest changing a key component in each press. The new component will cost $70 more than the old one. In the next year, however, SpeedPrint expects that with the new component it will (1) save 14,000 hours of rework, (2) save 850 hours of customer support, (3) move 225 fewer loads, (4) save 8,000 hours of warranty repairs, and (5) sell an additional 140 printing presses, for a total contribution margin of $1,680,000. SpeedPrint believes that even as it improves quality, it will not be able to save any of the fixed costs of re- work or repair. SpeedPrint uses a 1-year time horizon for this decision because it plans to introduce a new press at the end of the year.

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

Section: Chapter Questions

Problem 1CE: The expected costs for the Maintenance Department of Stazler, Inc., for the coming year include:...

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The expected costs for the Maintenance Department of Stazler, Inc., for the coming year include: Fixed costs (salaries, tools): 64,900 per year Variable costs (supplies): 1.35 per maintenance hour Estimated usage by: Actual usage by: Required: 1. Calculate a single charging rate for the Maintenance Department. 2. Use this rate to assign the costs of the Maintenance Department to the user departments based on actual usage. Calculate the total amount charged for maintenance for the year. 3. What if the Assembly Department used 4,000 maintenance hours in the year? How much would have been charged out to the three departments?
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