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:

	Model K	Model R		Costs of Value -Stream Activities
Cell manufacturing		2,700	minutes		2,100	minutes				$19,200
Engineering		65	hours		15	hours				3,400
Testing		25	hours		55	hours				3,000
Total										$25,600

Required:

1. Calculate the ABC product cost (conversion cost) for Models K and R. Model K $fill in the blank 1 per unit Model R $fill in the blank 2 per unit

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. $fill in the blank 3

The average cost is markedly different from/similar to the ABC costs, which suggests significant/little significant heterogeneity. The products may be similar in the sense that they use the same sequence of production operations/demands they place on value-stream resources sequence of production operations but very different in terms of the sequence of production operations demands they place on value-stream resources/demands they place on value-stream resources.

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. Round the answers to nearest cent. Model K $fill in the blank 8 Model R $fill in the blank 9

DBC approximates/does not approximate ABC costs quite well and has the simplicity needed for a lean manufacturing environment. Thus, whenever there are heterogeneous/homogeneous

products in a value stream, DBC appears to be a more desirable approach than average costing and a viable alternative to features and characteristics costing.