Textbook Problem

During the week of August 21, Parley Manufacturing produced and shipped 4,000 units of its machine tools: 1,500 units of Tool SK1 and 2,500 units of Tool SK3. The cycle time for SK1 is 0.73 hour, and the cycle time for SK3 is 0.56 hour. The following costs were incurred:

Required:

1. 1. Assume that the value-stream costs and total units shipped apply only to one model (a single-product value stream). Calculate the unit cost, and comment on its accuracy.
2. 2. Assume that Tool SK1 is responsible for 60% of the materials cost. Calculate the unit cost for Tool SK 1 and Tool SK3, and comment on its accuracy. Explain the rationale for using units shipped instead of units produced in the calculation.
3. 3. Calculate the unit cost for the two models, using DBC. Explain when and why this cost is more accurate than the unit cost calculated in Requirement 2.