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  • Huron-Question 3 - Normal Capacity

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    Eshesh Gupta
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    The document analyzes the incremental costs and benefits of installing new equipment in a custom work department. It finds that the additional monthly depreciation cost would be $6,667 but there would also be savings from reduced variable overhead of $4,434 per month and labor cost savings of $23,760 per month from a 30% reduction in direct labor hours. The net monthly savings in conversion costs from direct labor and overhead would be $21,528. Therefore, the analysis recommends that Huron should install the new equipment.

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    Huron-question 3- normal capacity

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    The document analyzes the incremental costs and benefits of installing new equipment in a custom work department. It finds that the additional monthly depreciation cost would be $6,667 but there would also be savings from reduced variable overhead of $4,434 per month and labor cost savings of $23,760 per month from a 30% reduction in direct labor hours. The net monthly savings in conversion costs from direct labor and overhead would be $21,528. Therefore, the analysis recommends that Huron should install the new equipment.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    30 views2 pages

    Huron-Question 3 - Normal Capacity

    Uploaded by

    Eshesh Gupta
    The document analyzes the incremental costs and benefits of installing new equipment in a custom work department. It finds that the additional monthly depreciation cost would be $6,667 but there would also be savings from reduced variable overhead of $4,434 per month and labor cost savings of $23,760 per month from a 30% reduction in direct labor hours. The net monthly savings in conversion costs from direct labor and overhead would be $21,528. Therefore, the analysis recommends that Huron should install the new equipment.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    of 2

    Huron - Analysis of Question 3 - Incremental cost/benefit analysis - custom work department - as

    Irrespective of overhead allocation methodology (plant wide rate or department wise rates), increase in depreciation related t
    Additional depreciationper month=400000/60= 6667 Note: Increase in overhead per month after inst

    Savings related to variable overheads (10% of overheads variable)


    Normal overhead costs per month Ex. 4 147820
    Normal volume in terms of direct labour hours ex.4 3600
    Overhead rate per hour Ex. 4 41.06
    Savings in direct labour hours 30%
    Savings in variable overhead=10% *41.06*3600*.3 4434 Note: Decrease in overhead per month after ins

    Net increase in overhead per month after installation of equipt 2232

    Savings related to direct labour hours


    Normal direct hours as per Ex. 4 3600
    Savings 30%
    Savings in labour hours 1080
    Current labour hour rate exhibit 2 22
    Savings in labour cost 23760

    Therefor, net savings in conversion costs (DL+OH) per month 21528

    As there is net savings in conversion costs per month,Huron should go for installation.
    work department - assuming normal capacity

    ase in depreciation related to the equipment is the same.


    erhead per month after installation of equipt.

    erhead per month after installation of equipt.

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