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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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A value stream has three activities and two products. The units produced and shipped per week are 50 of the limited model (Model K), characterized by special additional features, and 150 of the regular model (Model R), with only basic features. The conversion cost resource consumption patterns are shown as follows:

Chapter 13, Problem 44E, A value stream has three activities and two products. The units produced and shipped per week are 50

Required:

  1. 1. Calculate the ABC product cost (conversion cost) for Models K and R.
  2. 2. Calculate the value-stream average product cost (conversion cost). Assuming reasonable stability in the consumption patterns of the products and product mix, assess how well the products are grouped, based on similarity.
  3. 3. Calculate the cycle time for each product by dividing the total hours used for each product by the units produced of each product. Now calculate the DBC cost for each product. Comment on the significance of DBC for this setting.

1.

To determine

Compute product cost as per ABC costing.

Explanation

Value Stream:

Value stream consists of the processes through which a product goes; that is from procurement to delivery. In value stream, all processes are covered whether or not they add value to the product.

Computation of ABC conversion costs for model A and B:

ParticularsModel A ($)Model B ($)Total ($)
Activity one1 @ $4 per minute

(4×2,700)

10,800

(4×2,100)

8,400

19,200
Activity two1 @ $42.5 per hour

(42.5×65)

2,762.5

(42.5×15)

637.5

3,400
Activity three1 @ $37.5 per hour

(37.5×25)

937.5

(37.5×55)

2,062.5

3,000
Total (A)14,50011,10025,600
Number of units (B)50150200
Unit conversion cost (AB)29074 

Table (1)

Working Notes:

1

2.

To determine

Compute value-stream product cost.

3.

To determine

Compute cycle time for each product.

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