Textbook Problem

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:

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.