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7 months ago

(WIP) ACC 350 Exam 1 Study Material

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$1,715,071 $1,854,929 #

$1,715,071 $1,854,929 # of Units 50,000 10,000 $34.30 $185.49 DM 38.00 54.00 DL (from part 2) 30.00 60.00 Total Product Cost $102.30 $299.49 Selling Price $145.00 $275.00 Gross Margin $42.70 ($24.49) e. What can Brrrrr Company do to improve its profitability? Currently, the Self-propelled model is losing money on each unit sold (even before SG&A costs!). The company probably doesn’t want to discontinue this model. First, they may want to explore the idea of increasing prices. Second, they should evaluate whether they can use the ABC information to manage costs. The schedule below breaks out activity costs per unit. They should use this information and focus on the high dollar costs. For example, it costs $52 per unit to inspect the Self-propelled snow blowers. This seems excessive given the $275 selling price (20% of selling price for inspection?). Setups are also extremely expensive. Can they run more items in a batch? While inventory holding costs would increase, reducing the number of batches would likely reduce the costs per unit of inspections, setups, scheduling and material handling. They should do a cost/benefit analysis to determine whether the savings offset the increasing inventory holding costs. Activity Self-Propelled Per Unit Engineering Design $286,000 $28.60 Inspections 585,000 58.50 Production Set-ups 305,000 30.50 Scheduling 110,000 11.00 Material Handling 147,500 14.75 Machine Maintenance 200,000 20.00 Facility Costs 221,429 22.14 $1,854,929 $185.49

$1,715,071 $1,854,929 # of Units 50,000 10,000 $34.30 $185.49 DM 38.00 54.00 DL (from part 2) 30.00 60.00 Total Product Cost $102.30 $299.49 Selling Price $145.00 $275.00 Gross Margin $42.70 ($24.49) e. What can Brrrrr Company do to improve its profitability? Currently, the Self-propelled model is losing money on each unit sold (even before SG&A costs!). The company probably doesn’t want to discontinue this model. First, they may want to explore the idea of increasing prices. Second, they should evaluate whether they can use the ABC information to manage costs. The schedule below breaks out activity costs per unit. They should use this information and focus on the high dollar costs. For example, it costs $52 per unit to inspect the Self-propelled snow blowers. This seems excessive given the $275 selling price (20% of selling price for inspection?). Setups are also extremely expensive. Can they run more items in a batch? While inventory holding costs would increase, reducing the number of batches would likely reduce the costs per unit of inspections, setups, scheduling and material handling. They should do a cost/benefit analysis to determine whether the savings offset the increasing inventory holding costs. Activity Self-Propelled Per Unit Engineering Design $286,000 $28.60 Inspections 585,000 58.50 Production Set-ups 305,000 30.50 Scheduling 110,000 11.00 Material Handling 147,500 14.75 Machine Maintenance 200,000 20.00 Facility Costs 221,429 22.14 $1,854,929 $185.49