Production run size and activity improvement Littlejohn, Inc. manufactures machined parts for the automotive industry. The activity cost associated with Part XX-10 is as follows: Activity Activity-Base Usage × Activity Rate = Activity Cost Fabrication 250 dlh $80per dlh $20,000 Setup 10 setups $80 per setup 800 Production control 10 prod, runs $30 per prod, run 300 Moving 10 moves $25 per move 250 Total activity cost per unit $21,350 Estimated units of production ÷ 500 Activity cost per unit $ 42.70 Each unit requires 30 minutes of fabrication direct labor. Moreover, part XX-10 is manufactured in production run sizes of 50 units. Each production run is set up, scheduled (production control), and moved as a batch of 50 units. Management is considering improvements in the setup, production control, and moving activities in order to cut the production run sizes by half. As a result, the number of setups, production runs, and mows will double from 10 to 20. Such improvements are expected to speed the company’s ability to respond to customer orders. • Setup is reengineered so that it takes 60% of the original cost per setup. • Production control software will allow production control effort and cost per production run to decline by 60%. • Moving distance was reduced by 40%, thus reducing the cost per mow by the same amount. A. Determine the revised activity cost per unit under the proposed changes. B. Did these improvements reduce the activity cost per unit? C. What cost per unit for setup would be required for the solution in (A) to equal the base solution?

BuyFind

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207
BuyFind

Financial & Managerial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337119207

Solutions

Chapter
Section
Chapter 18, Problem 3ADM
Textbook Problem

Production run size and activity improvement

Littlejohn, Inc. manufactures machined parts for the automotive industry. The activity cost associated with Part XX-10 is as follows:

Activity

Activity-Base

Usage

× Activity Rate = Activity Cost
Fabrication 250 dlh   $80per dlh   $20,000
Setup 10 setups   $80 per setup   800
Production control 10 prod, runs   $30 per prod, run   300
Moving 10 moves   $25 per move   250
Total activity cost per unit         $21,350
Estimated units of production         ÷ 500
Activity cost per unit         $ 42.70

Each unit requires 30 minutes of fabrication direct labor. Moreover, part XX-10 is manufactured in production run sizes of 50 units. Each production run is set up, scheduled (production control), and moved as a batch of 50 units. Management is considering improvements in the setup, production control, and moving activities in order to cut the production run sizes by half. As a result, the number of setups, production runs, and mows will double from 10 to 20. Such improvements are expected to speed the company’s ability to respond to customer orders.

• Setup is reengineered so that it takes 60% of the original cost per setup.

• Production control software will allow production control effort and cost per production run to decline by 60%.

• Moving distance was reduced by 40%, thus reducing the cost per mow by the same amount.

A. Determine the revised activity cost per unit under the proposed changes.

B. Did these improvements reduce the activity cost per unit?

C. What cost per unit for setup would be required for the solution in (A) to equal the base solution?

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Chapter 18 Solutions

Financial & Managerial Accounting
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