Answered: TwoShaft Inc. manufactures a wide…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 16BEA

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Question

TwoShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $960, and sales volume averages 33,500 units per year. Recently, TwoShaft's major competitor lowered the price of the equivalent part to $740. The market was very competitive, and TwoShaft realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:

Cost and Usage for Production of 33,500 Units
	Standard Cost		Actual Quantity	Actual Cost
Materials	$	6,671,000			$	7,151,000
Direct labor		2,287,000				2,191,000
Indirect labor		3,279,000				3,087,000
Inspection (hours)				4,100		553,500
Materials handling (number of purchases)				73,750		402,250
Machine setups				5,350		1,505,700
Returns and rework (number of times)				1,000		97,400
Total					$	14,987,850

The target cost for maintaining current market share and profitability is (round to nearest cent):

Multiple Choice

$291.40.
$247.91.
$297.40.
$227.40.
$221.40.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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