Bryant Calvo

Question 1
Production:
Monthly Production Monthly Unit Shipments
Valves 7,500 7,500
Pumps 12,500 12,500
Flow Controllers 4,000 4,000

Materials:
Material Costs Total Costs
Valves $ 16.00 $ 120,000.00
Pumps $ 20.00 $ 250,000.00
Flow Controllers $ 22.00 $ 88,000.00
$ 458,000.00

Run Labor:
Dollars per hour $ 16.00

Run Hours Total Hours

Valves 0.25 1875
Pumps 0.5 6250
Flow Controllers 0.4 1600
9725

Machine Hours:
Machine Hours Total Machine Hours
Valves 0.5 3750
Pumps 0.5 6250
Flow Controllers 0.2 800
10800
Overhead:
Setup hours Monthly Runs
Valves 8 1
Pumps 8 5
Flow Controllers 12 10

Manufacturing Overhead:

Receiving $ 20,000.00
Materials Handling $ 200,000.00
Engineering $ 100,000.00
Packing & Shipping $ 60,000.00
Maintenance $ 30,000.00
Machine Depreciation $ 270,000.00
Total $ 680,000.00

Total Overhead:
Total Setup Overhead $ 2,688.00
Total Manufacturing Overhead $ 680,000.00
Total $ 682,688.00

Unit Price Calculation:

Total 682688
Predetermined overhead rate 4.38745501285347

Valves Pumps
Overhead $ 131,623.65 $ 438,745.50
Direct Labor $ 30,000.00 $ 100,000.00
Total Material $ 120,000.00 $ 250,000.00
Total Cost $ 281,623.65 $ 788,745.50
Total Units 7,500 12,500
Unit Cost $ 37.55 $ 63.10
 Shipments
1
7
22

Total Cost Total Direct Labor

$ 30,000.00 $ 30,000.00
$ 100,000.00 $ 100,000.00
$ 25,600.00 $ 25,600.00
$ 155,600.00 $ 155,600.00

Total Setup Hours Total Cost for Setup

8 $ 128.00
40 $ 640.00
120 $ 1,920.00
168 $ 2,688.00
 Flow Controllers
$ 112,318.85
$ 25,600.00
$ 88,000.00
$ 225,918.85
4,000
$ 56.48
Question 2

Valves Pumps Flow Controllers

Selling Price $ 57.78 $ 81.26 $ 97.07

Contribution Margin:
Valves Pumps Flow Controllers
Revenues $ 433,350.00 $ 1,015,750.00 $ 388,280.00
Variable Costs $ 150,000.00 $ 350,000.00 $ 113,600.00
Total Contribution Margin $ 283,350.00 $ 665,750.00 $ 274,680.00

To find the contribution margin you must calculate the total revenue and
subtract it by the variable cost. To find the revenue I took the actual selling
price of each of the components and multiplied it by the monthly production.
Then I found the variable costs by adding the direct labor cost and the total
material cost of each unit. Then by subtracting these two I found the
contribution margin.
Question 3
Production:
Monthly Production
Valves 7500
Pumps 12500
Flow Controllers 4000

Materials Overhead:
Receiving $ 20,000.00
Materials Handling $ 200,000.00
$ 220,000.00
Materials:
Material Cost Total Material Costs Percentage
Valves $ 16.00 $ 120,000.00 26%
Pumps $ 20.00 $ 250,000.00 55%
Flow Controllers $ 22.00 $ 88,000.00 19%
$ 458,000.00

Labor:
Total cost for run
Valves $ 30,000.00
Pumps $ 100,000.00
Flow Controllers $ 25,600.00
$ 155,600.00
Total Cost for setup
$ 128.00
$ 640.00
$ 1,920.00
$ 2,688.00

Machine Hours:
Machine Hours Total Machine Hours Percentage
Valves 0.5 3750 35%
Pumps 0.5 6250 58%
Flow 0.2 800 7%
10800
Overhead:
Engineering $ 100,000.00
Packing & Shipping $ 60,000.00
Maintenance $ 30,000.00
Machine Depreciation $ 270,000.00
Total $ 460,000.00

Predetermined OH 4259%

Valves Pumps Flow Controllers

Overhead $ 159,722.22 $ 266,203.70 $ 34,074.07
Direct Labor $ 30,000.00 $ 100,000.00 $ 25,600.00
Setup Labor $ 128.00 $ 640.00 $ 1,920.00
Total Material $ 177,641.92 $ 370,087.34 $ 130,270.74
Total Cost $ 367,492.14 $ 736,931.04 $ 191,864.82
Total Units 7500 12500 4000
Unit Cost $ 49.00 $ 58.95 $ 47.97
 Revised Materials
$ 177,641.92
$ 370,087.34
$ 130,270.74
$ 678,000.00
Question 4

Overhead Valves Pumps Flow Controllers

Receiving $ 20,000.00 3% 19% 78%
Materials Handling
Once per receipt (60%) $ 120,000.00 3% 19% 78%
Once per run (40%) $ 80,000.00 3% 19% 78%
Packing & Shipping $ 60,000.00 4% 23% 73%
Engineering $ 100,000.00 20% 30% 50%
Depreciation & Maintenance $ 300,000.00 35% 58% 7%

ABC Method:
Valves Pumps Flow Controllers
Receiving $ 600.00 $ 3,800.00 $ 15,600.00
Materials Handling
Once per receipt (60%) $ 3,600.00 $ 22,800.00 $ 93,600.00
Once per run (40%) $ 2,400.00 $ 15,200.00 $ 62,400.00
Packing & Shipping $ 2,400.00 $ 13,800.00 $ 43,800.00
Engineering $ 20,000.00 $ 30,000.00 $ 50,000.00
Depreciation & Maintenance $ 105,000.00 $ 174,000.00 $ 21,000.00
Direct Labor $ 30,000.00 $ 100,000.00 $ 25,600.00
Setup Labor $ 128.00 $ 640.00 $ 1,920.00
Total Material $ 120,000.00 $ 250,000.00 $ 88,000.00
Total Cost $ 284,128.00 $ 610,240.00 $ 401,920.00
Total Units 7500 12500 4000
Unit Cost $ 37.88 $ 48.82 $ 100.48
Question 5

Valves Pumps Flow Controllers

Actual Selling Price $ 57.78 $ 81.26 $ 97.07
Unit Cost $ 37.55 $ 63.10 $ 56.48
ABC unit Cost $ 37.88 $ 48.82 $ 100.48

Variable Costs $ 150,000.00 $ 350,000.00 $ 113,600.00

ABC Variable Costs $ 150,128.00 $ 350,640.00 $ 115,520.00

Fixed Cost $ 131,623.65 $ 438,745.50 $ 112,318.85

ABC Fixed Cost $ 134,000.00 $ 259,600.00 $ 286,400.00

Net Income:
Valves Pumps Flow Controllers
Revenue $ 433,350.00 $ 1,015,750.00 $ 388,280.00
Variable Costs $ 150,000.00 $ 350,000.00 $ 113,600.00
Contribution Margin $ 283,350.00 $ 665,750.00 $ 274,680.00
Fixed Costs $ 131,623.65 $ 438,745.50 $ 112,318.85
Net Income $ 151,726.35 $ 227,004.50 $ 162,361.15

ABC Net Income:

Valves Pumps Flow Controllers
Revenue $ 433,350.00 $ 1,015,750.00 $ 388,280.00
Variable Costs $ 150,128.00 $ 350,640.00 $ 115,520.00
Contribution Margin $ 283,222.00 $ 665,110.00 $ 272,760.00
Fixed Costs $ 134,000.00 $ 259,600.00 $ 286,400.00
Net Income $ 149,222.00 $ 405,510.00 $ (13,640.00)

Net Income Comparison:

Current ABC Difference
Valves $ 151,726.35 $ 149,222.00 $ (2,504.35)
Pumps $ 227,004.50 $ 405,510.00 $ 178,505.50
Flow Controllers $ 162,361.15 $ (13,640.00) $ (176,001.15)
Question 6

Current System:
Valves Pumps Flow Controllers
Total Units 7,500 12,500 4,000
Unit Cost $ 37.55 $ 63.10 $ 56.48
Selling Price $ 57.78 $ 81.26 $ 97.07
Gross Margin per unit $ 20.23 $ 18.16 $ 40.59
Gross Margin % per unit 0.005% 0.002% 0.010%

Revenue $ 433,350.00 $ 1,015,750.00 $ 388,280.00

Cost of Goods Sold $ 281,623.65 $ 788,745.50 $ 225,918.85
Gross Margin $ 151,726.35 $ 227,004.50 $ 162,361.15
Gross Margin % 35% 22% 42%

ABC Method:
Total Units 7500 12500 4000
Unit Cost $ 37.88 $ 48.82 $ 100.48
Selling Price $ 57.78 $ 81.26 $ 97.07
Gross Margin per unit $ 19.90 $ 32.44 $ (3.41)
Gross Margin % per unit 0.005% 0.003% -0.001%

Revenue $ 433,350.00 $ 1,015,750.00 $ 388,280.00

Cost of Goods Sold $ 284,128.00 $ 610,240.00 $ 401,920.00
Gross Margin $ 149,222.00 $ 405,510.00 $ (13,640.00)
Gross Margin % 34% 40% -4%

Mary Fords Costing System:

Total Units 7500 12500 4000
Unit Cost $ 49.00 $ 58.95 $ 47.97
Selling Price $ 57.78 $ 81.26 $ 97.07
Gross Margin per unit $ 8.78 $ 22.31 $ 49.10
Gross Margin % per unit 0.002% 0.002% 0.013%

Revenue $ 433,350.00 $ 1,015,750.00 $ 388,280.00

Cost of Goods Sold $ 367,492.14 $ 736,931.04 $ 191,864.82
Gross Margin $ 65,857.86 $ 278,818.96 $ 196,415.18
Gross Margin % 15% 27% 51%

Current to Fords Current to Fords Current to ABC Current to ABC

Method Increase Method % Method Increase Method %
Valves $ (85,868.49) -56.59% $ (2,504.35) -1.65%
Pumps $ 51,814.46 22.83% $ 178,505.50 78.64%
Flow Controllers $ 34,054.03 20.97% $ (176,001.15) -108.40%
I prefer using the ABC method because the accuracy of this method outweighs the other methods. The
current method they use is generating net income on all three products, but the company mentioned that
it will raise the price of flow controllers by 12.5% and they can't be competitive in the pricing of pumps.
They also do not include machine utilization in any of their products. Mary Ford's method allocates the
overhead to machine hours instead of labor hours, which causes the valves product to decrease in net
income because they have a large amount of machine hours. Pumps net income increases because there
is less allocation in overhead, flow controllers net income increase as well. Under the ABC method flow
controllers have the most overhead, so they lose net income, in return it increases net income for pumps.
ABC utilizes shipments and runs very efficiently. Even though flow controllers are losing net income it
makes sense because they are using the most resources. The ABC method is a more accurate method in
determining unit cost and allocation.
 
 Fords Method to ABC Fords Method to
Method Increase ABC Method %
$ 83,364.14 126.58%
$ 126,691.04 45.44%
$ (210,055.18) -106.94%
Question 7

Original Flow Controllers ABC Information Flow Controllers Price Increase 10%

Flow Controllers
Units 4,000 4000
Unit Cost $ 100.48 $ 100.48
Selling Price $ 97.07 $ 106.78

Receiving $ 15,600.00 $ 15,600.00

Materials Handling
Once per receipt (60%) $ 93,600.00 $ 93,600.00
Once per run (40%) $ 62,400.00 $ 62,400.00
Packing & Shipping $ 43,800.00 $ 43,800.00
Engineering $ 50,000.00 $ 50,000.00
Depreciation & Maintenance $ 21,000.00 $ 21,000.00
Direct Labor $ 25,600.00 $ 25,600.00
Setup Labor $ 1,920.00 $ 1,920.00
Total Material $ 88,000.00 $ 88,000.00
Total Cost $ 401,920.00 $ 401,920.00
Total Units 4,000
Unit Cost $ 100.48

Revenue $ 388,280.00 $ 427,108.00

Variable Costs $ 115,520.00 $ 115,520.00
Contribution Margin $ 272,760.00 $ 311,588.00
Fixed Costs $ 286,400.00 $ 286,400.00
Net Income $ (13,640.00) $ 25,188.00

Reduce Material Cost by removing one part

ers Price Increase 10%
Question 8