Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing costs to estimate product costs for valves, pumps, and flow controllers.

Exhibit 3 Standard Unit Costs Material Direct labor Overhead @ 439% oidirect labor $ Standard unit cost Overhead Machine depreciation Set-up labor Receiving Materials handling Engineering Packing and shipping Maintenance Total run labor = 9,725 hours x $16 = $155,600 Overhead rate 682,688 55,600 = 439% Valves $16.00 4.00 17.56 $37.56 Pumps $20.00 8.00 $63.12 $270,000 2,688 20,000 200,000 100,000 60,000 30 000 $682,688 Flow Controllers $22.00 6.40 M $56.50 Exhibit 4 Revised Unit Costs Valves Pumps Flow Controllers Material $16.00 Material overhead (48%) 7.68 Set-up labor Direct labor .02 4.00 Other overhead (machine hour 21.30 basis) Revised standard cost 02w Material Related Overhead Receiving Materials handling Total Overhead Absorption Rate $220 ,000 $458 ,000 Other Overhead = 43% (materials cost basis) Machine depreciation Engineering Packing and shipping Maintenance Total Overhead Absorption Rate $460,000 10,800 hours = $42 .59 per machine hour $20.00 9.60 .05 3.00 L30 05.0290 20.000 200.0110 $220,000 $270,000 1 00.000 60.000 W $460,000 $22.00 1 0.56 .48 6.40 E $47.36 Exhibit 1 Product Profitability Analysis Valves Pumps Flow Controllers Standard unit costs $37.56 $63.12 $56.50 Target selling price $57.78 $97.10 $86.96 Planned gross margin (%) 35% 35% 35% Last Month Actual selling price $57.78 $81.26 $97.07 Actual gross margin 35% 22% 42% Exhibit 2 Monthly Product and Cost Summary Product Lines Valves Pumps Flow Controllers Monthly production 7,500 units 12,500 units 4,000 units (1 run) (5 runs) (10 runs) Monthly shipments 7,500 units 12,500 units 4,000 units (1 shipment) (7 shipments) (22 shipments) Manufacturing Costs Monthly Total Material 4 components 5 components 10 components 2 @ $2 = $ 4 3 @ $2 = $6 4 @ $1 = $ 4 2 @ 6= 12 2@ 7= 14 5 @ 2= 10 1 @ 8= 8 Total material 16 $20 $22 $458,000 Labor ($16 per hour including employee benefits) Set-up labor 8 hours per 8 hours per 12 hours per 168 hours production run production run production run Run labor .25 hours per unit .50 hours per unit .40 hours per unit 9,725 hours Machine usage .50 hours per unit .50 hours per unit .20 hours per unit 10,800 hours Manufacturing Overhead Receiving $ 20,000 Materials handling 200,000 Engineering 100,000 Packing and shipping 60,000 Maintenance 30,000 Total $410,000 Machine depreciation (units-of-production method) $25 per hour of use $270,000Exhibit 5 Monthly Overhead Cost Activity Analysis Receiving and Materials Handling: Receive each component once per run Handle each component once per run Packing and Shipping: One packing order per shipment Engineering: Estimated engineering workorder percentage (subjective) Maintenance: Machine-hour basis Valves 4 transactions (3%) 4 transactions (3%) 1 transaction (3%) 20% 3.750 hours (35%) Pumps 25 transactions (1 9%) 25 transactions (1 9%) 7 transactions (23%) 30% 6,250 hours (53%) Flow Controllers 100 transactions (78%) 100 transactions (78%) 22 transactions (73%) 50% 300 hours (7%)