Assignment -
You have been asked to look at production options for the Android01, since production methods and allocation of costs have implications for cost per unit. Two alternative methods of production are being considered. Begin by gathering data (using financial information in decision making), then determine the suitability of the project.
The production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and will be assigned at the rate of 30 percent to Android01 and 70 percent to Processor01.
The variable cost of the production facilities and service divisions is $25 million per year. The square footage of factory space and labor needed for the production of 500 units of Processor01 and 300 units of Android01 are listed below.
|
|
Square Feet
|
Labor
|
|
Processor01 (500 units)
|
70,000
|
120
|
|
Android01 (300 units)
|
30,000
|
80
|
The remaining cost for the production of Android01 is for components, at $25,000 per unit.
Question 1: In Method B, what would be the cost per unit of producing Android01 using factory space as the allocation basis? What would be the cost per unit using labor as the allocation basis?
Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Please note that narrative in this Project does not mean audio. It rather means a presentation of the results of your analysis using words and the important numbers. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.
An alternate method of assigning costs is activity-based costing.The major activities for the production of both Processor01 and Android01 are fabricator setup and component assembly. There are 500 units of Processor01 and 300 units of Android01 produced every year. There will be a total of 25,000 setups per year for at a total cost of $10 million. Each unit of Android01 will require 40 setups. There will be a total of 125,000 assemblies per year at a total cost of $15 million. Each unit of Android01 will require 180 assemblies. The remaining cost for the production of Android01 is for components, at $25,000 per unit.
Question 2: What would be the cost per unit of producing Android01 using activity-based costing?
Note that in addition to the setup costs and assemblies costs there are two more costs to add: (1) fixed costs of $5 million, which are still distributed at a rate of 30 percent to Android01 and 70 percent to Processor01, and (2) the cost of Android01 components at $25,000 per unit.
Discuss the differences in the cost per unit of Android01 using space as an allocation basis, using labor as an allocation basis, and using activity-based costing. Which method do you think is the most accurate way to assign costs?
Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.
Next, suppose IPS uses markup pricing for Android01. Fixed costs are $4.5 million, and for a level of production of 300 units, the variable cost per unit is $48,000.
Question 3: What is the price of the Android01 at 30 percent markup over full cost?
Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.
When you have submitted your Allocation of Costs Report, Activity-Based Costing Report, and Markup Pricing Report, continue to the next step, whewre you will assess the profit-maximizing output level, prepare a production cost budget, and produce a Profit or Loss Report.
Before you submit your assignment, review the competencies below, which your instructor will use to evaluate your work. A good practice would be to use each competency as a self-check to confirm you have incorporated all of them in your work.
The CEO's next question is, "What level of output would be required to maximize our profit on the MiniZ?" You have calculated the variable cost per unit for different levels of production. From market research, you have a schedule of prices for these levels. The information for MiniZ is summarized in the table below:
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Number of Units
|
Variable Cost per Unit ($)
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Sale Price per Unit ($)
|
|
200
|
60,000
|
70,000
|
|
250
|
54,000
|
66,000
|
|
300
|
48,000
|
64,000
|
|
350
|
46,000
|
59,000
|
|
400
|
45,000
|
52,000
|
A recommendation on output could affect everyone in the company, from management to sales, to the floor manager and assembly line workers! You don't want to get this one wrong so you take some extra time to proof your calculations.
Question 4: Based on profit-maximization analysis, what level of output of MiniZ should you recommend to the CEO?
Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.
Your CEO has also asked you to prepare a production cost budget for the MiniY for May 20X8. The actual costs in April 20X8 were as follows:
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MiniY: Production Cost Budget
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|
April 20X8
|
|
Production-Units of MiniY
|
3,000
|
|
Components cost (variable)
|
24,000,000
|
|
Labor cost (variable)
|
13,500,000
|
|
Rent (fixed)
|
6,000,000
|
|
Depreciation (fixed)
|
6,000,000
|
|
Other (fixed)
|
2,000,000
|
|
Total
|
$51,500,000
|
For the month of May, the number of MiniY produced will increase to 3,200, reflecting an anticipated sales increase related to a new marketing campaign.
Question 5: Using the above information, prepare a budget for MiniY for May 20X8, stating the total cost. Use a spreadsheet to display your data and calculations.
Before starting your calculations, review materials on Integrating Accounting and Financial Information
Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.
IPS operates a factory, which produces the MiniY and the MiniX. During September 20X8, the factory produced 3200 units of MiniY and 3000 units of MiniX. The joint cost related to the operation was $3,000,000. MiniX sells for $27,100 per unit and MiniY sells for $25,000 per unit. Allocate the joint costs using the relative sales values of MiniY and MiniX.
Question 6: With the costs that you calculate, what is the profit or loss associated with MiniY? NOTE:Assume that the variable and fixed costs mentioned in Question 5 are also applicable to Question 6 when calculating the profit or loss for MiniY. The costs for this question will be the total of the cost calculated in the above MiniY: Production Cost Budget plus the share of costs of the $3,000,000 (from the paragraph above) allocated to MiniY.
Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.
After you have submitted these three reports, continue to the next step, where you will prepare an anlysis and summary of financial projections.
Question 7: Managerial Accounting Report to Management
Although you get frustrated at times with your CEO's constant requests for information, it is your job as a CFO to analyze that data for her. You both understand that data provides a basis for sound operational decision-making (Integrating Accounting and Financial Information)
The CEO's final request is for an analysis and summary of financial projections for the Mini and Android lines, based on the information gathered in the previous steps.
You collect your previous reports and spreadsheets and pore over them, looking for meaningful trends and patterns.
Attachment:- Assignment File.rar