n O'Sullivan Company is an automotive component supplier. O'Sullivan has been approached by Honda Canada's Alliston,...

 

 

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n O'Sullivan Company is an automotive component supplier. O'Sullivan has been approached by Honda Canada's Alliston, Ontario, plant to consider expanding its production of part 24Z2 to a total annual quantity of 2,000 units. This part is a low-volume, complex product with a high gross margin that is based on a proposed (quoted) unit sales price of $7.50. O'Sullivan uses a traditional costing system that allocates indirect manufacturing costs based on direct labour costs. The rate currently used to allocate indirect manufacturing costs is 400 percent of direct labour cost. This rate is based on the $3,200,000 annual factory overhead cost divided by $800,000 annual direct labour cost. Tò produce 2,000 units of 24Z2 requires $5,000 of direct materials and S1,000 of direct labour. The unit cost and gross margin percentage for part 24Z2 based on the traditional cost system are computed as follows: Per Unit Total (+2,000) $2.50 0.50 S 5,000 1,000 4.000 S10,000 Direct materials Direct labour Indirect production: (400% direct labour) Total cost Sales price quoted Gross margin Gross margin percentage 2.00 $5.00 7.50 S2.50 33.3% Cost Alloca Based proposal by Honda Canada? List the benefits and costs associated with implementing a 1. Prepare a schedule calculating the unit cost and gross margin of part 24Z2 using the activity 2. Based on the ABC results, which course of action would you recommend regarding the Factory Overhead Costs (annual) S 500,000 50,000 a team consisting of accounting and engineering analysts: Activity Centre Quality Production scheduling 700,000 300,000 50,000 Setup Shipping Shipping administration Production Total indirect production cost 1,600,000 $3,200,000 Annual Cost-Driver Quantity Activity Centre: Cost Drivers 10,000 Quality: Number of pieces scrapped Production scheduling and setup: Number of setups Shipping: Number of containers shipped Shipping administration: Number of shipments Production: Number of machine-hours 500 60,000 1,000 10,000 The accounting and engineering team has performed activity analysis and provides the fol- lowing estimates for the total quantity of cost drivers to be used to produce 2,000 units of part 24Z2: Cost Driver Cost-Driver Consumption Pieces scrapped Setups Containers shipped Shipments Machine-hours 120 4 10 5 15 REQUIRED based costing approach. ABC system at O'Sullivan, an n O'Sullivan Company is an automotive component supplier. O'Sullivan has been approached by Honda Canada's Alliston, Ontario, plant to consider expanding its production of part 24Z2 to a total annual quantity of 2,000 units. This part is a low-volume, complex product with a high gross margin that is based on a proposed (quoted) unit sales price of $7.50. O'Sullivan uses a traditional costing system that allocates indirect manufacturing costs based on direct labour costs. The rate currently used to allocate indirect manufacturing costs is 400 percent of direct labour cost. This rate is based on the $3,200,000 annual factory overhead cost divided by $800,000 annual direct labour cost. Tò produce 2,000 units of 24Z2 requires $5,000 of direct materials and S1,000 of direct labour. The unit cost and gross margin percentage for part 24Z2 based on the traditional cost system are computed as follows: Per Unit Total (+2,000) $2.50 0.50 S 5,000 1,000 4.000 S10,000 Direct materials Direct labour Indirect production: (400% direct labour) Total cost Sales price quoted Gross margin Gross margin percentage 2.00 $5.00 7.50 S2.50 33.3% Cost Alloca Based proposal by Honda Canada? List the benefits and costs associated with implementing a 1. Prepare a schedule calculating the unit cost and gross margin of part 24Z2 using the activity 2. Based on the ABC results, which course of action would you recommend regarding the Factory Overhead Costs (annual) S 500,000 50,000 a team consisting of accounting and engineering analysts: Activity Centre Quality Production scheduling 700,000 300,000 50,000 Setup Shipping Shipping administration Production Total indirect production cost 1,600,000 $3,200,000 Annual Cost-Driver Quantity Activity Centre: Cost Drivers 10,000 Quality: Number of pieces scrapped Production scheduling and setup: Number of setups Shipping: Number of containers shipped Shipping administration: Number of shipments Production: Number of machine-hours 500 60,000 1,000 10,000 The accounting and engineering team has performed activity analysis and provides the fol- lowing estimates for the total quantity of cost drivers to be used to produce 2,000 units of part 24Z2: Cost Driver Cost-Driver Consumption Pieces scrapped Setups Containers shipped Shipments Machine-hours 120 4 10 5 15 REQUIRED based costing approach. ABC system at O'Sullivan, an

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1 Heres the schedule calculating unit cost and gross margin using ABC approach 2 Bas... View the full answer