Spr Addington, Incorporated, makes a financial calculator, which has 90 unique components. Addington sells 7,500 calculators...

  

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Spr Addington, Incorporated, makes a financial calculator, which has 90 unique components. Addington sells 7,500 calculators per month at 591 each. The manufacturing costs per unit are $58.25, or $436.875 per month. Addington uses activity-based costing, and the cost-pool information is given below: Activity Cost Driver Machine hours 1. Machining Costs Machining of components 2. Testing Costs Testing components and final product (each individual unit is tested) 3. Rework Costs Correcting and fixing errors and defects 4. Order Costs Ordering of components 5. Engineering Costs Designing and managing processes Ordering Costs Engineering Costs (fixed) Total Manufacturing Testing hours Costs Units reworked Number of orders Additional Information: Monthly Total Manufacturing Costs Direct Materials used $253,500 Direct Manufacturing Labor Machining Costs (fixed) Testing Costs Rework Costs Engineering hours Cost per Unit of Cost Driver $5.85 per MH $2.60 por TH $26.00 per unit $27.30 per order $45.56 per EH "Testing time per unit is 2.5 hours 39,000 "Rework is required by 10% of total units 43,875 48,750 "Addington places 2 orders per month for 19.500 each component 4,914 27.336 "It takes one machine hour to make one $436.875 unit "It takes 0.08 engineering hours per unit In response to a competitive market, Addington must reduce its sales price to $80.60 per unit, and its costs by $10.40 per unit. No additional sales are expected at this lower price, due to the market, but Addington would lose significant sales if it does not reduce the sales price. Production has been asked to cut its costs by $7.80 per unit; improvements in manufacturing efficiency are expected to yield a net savings of $2.60 per calculator. The Design Department has proposed a new version that reduces the number of components to 56, and simplifies the testing process. Other expected effects of the redesign are: . . . ● . . • Direct materials cost per unit will decrease by $2.86 Direct manufacturing labor costs per unit will decrease by $0.65 Machining capacity will not be affected, but machine time per unit will drop by 20% Testing time per unit will drop by 25% Due to simplification of design, rework will decline to 4.5% of total units produced Engineering capacity will not be affected by the design change Rates per unit of the cost drivers for overhead will not be affected by the design change. Required: (1) Calculate Addington's manufacturing cost per unit of the new version of the product (2) Will the new design achieve the per-unit cost-reduction targets that have been set for the manufacturing costs of the new version? Show you calculations to justify your answer. (3) The data describe two strategies to reduce costs, (a) improving manufacturing efficiency and (b) redesigning the product. Which strategy has more impact on Addington's costs? Explain briefly. Spr Addington, Incorporated, makes a financial calculator, which has 90 unique components. Addington sells 7,500 calculators per month at 591 each. The manufacturing costs per unit are $58.25, or $436.875 per month. Addington uses activity-based costing, and the cost-pool information is given below: Activity Cost Driver Machine hours 1. Machining Costs Machining of components 2. Testing Costs Testing components and final product (each individual unit is tested) 3. Rework Costs Correcting and fixing errors and defects 4. Order Costs Ordering of components 5. Engineering Costs Designing and managing processes Ordering Costs Engineering Costs (fixed) Total Manufacturing Testing hours Costs Units reworked Number of orders Additional Information: Monthly Total Manufacturing Costs Direct Materials used $253,500 Direct Manufacturing Labor Machining Costs (fixed) Testing Costs Rework Costs Engineering hours Cost per Unit of Cost Driver $5.85 per MH $2.60 por TH $26.00 per unit $27.30 per order $45.56 per EH "Testing time per unit is 2.5 hours 39,000 "Rework is required by 10% of total units 43,875 48,750 "Addington places 2 orders per month for 19.500 each component 4,914 27.336 "It takes one machine hour to make one $436.875 unit "It takes 0.08 engineering hours per unit In response to a competitive market, Addington must reduce its sales price to $80.60 per unit, and its costs by $10.40 per unit. No additional sales are expected at this lower price, due to the market, but Addington would lose significant sales if it does not reduce the sales price. Production has been asked to cut its costs by $7.80 per unit; improvements in manufacturing efficiency are expected to yield a net savings of $2.60 per calculator. The Design Department has proposed a new version that reduces the number of components to 56, and simplifies the testing process. Other expected effects of the redesign are: . . . ● . . • Direct materials cost per unit will decrease by $2.86 Direct manufacturing labor costs per unit will decrease by $0.65 Machining capacity will not be affected, but machine time per unit will drop by 20% Testing time per unit will drop by 25% Due to simplification of design, rework will decline to 4.5% of total units produced Engineering capacity will not be affected by the design change Rates per unit of the cost drivers for overhead will not be affected by the design change. Required: (1) Calculate Addington's manufacturing cost per unit of the new version of the product (2) Will the new design achieve the per-unit cost-reduction targets that have been set for the manufacturing costs of the new version? Show you calculations to justify your answer. (3) The data describe two strategies to reduce costs, (a) improving manufacturing efficiency and (b) redesigning the product. Which strategy has more impact on Addington's costs? Explain briefly.

Answer rating: 100% (QA)

1 Calculate Addingtons manufacturing cost per unit of the new version of the product Current Manufacturing Cost per Unit Direct Materials cost per unit 39000 7500 520 Direct Manufacturing Labor cost p... View the full answer