2005 bob myer Production cost Viewed

Miles High cycles Handcrafter mountain bikes

Sales $13,000,000
bob myer Avid cyclist stanford university
2003 Miles High cycles founded
Mountaing bike speed 15 to 21
1992 Cycles sellerss emerged
2003 sales of bicycles declined
Sales of mountain bikes increased 2,000,000 units
2004 bob myer Planned to produced 10,000
Miles High cycles Operations Three departments

Shipping wheels not mounted avoid damage

2004 10,800 bicycles 800
bikes same model
1) frames 2) wheel assembly 3) Final assembly
Cut pieces welded Hubs, spokes and rims Frame and wheels combined
time consuming Purchased from outside supplier
painted in 1/10 diff colors Lacing and truing machine to build wheels
assembly

more than planned

 Exhibit 2 (ACUTAL) 2004 Production Costs

Actual production: 10,800

bicycles

Frame assembly:
(113,400 lbs. @
Steel tubing $3,572,100
$31.50/lb.)
(1,375 gals. @
Paint 28,187
$20.50/gal.)
(100,200 hrs. @
Labor $1,528,050
$15.25/hr.)

Total frame $5,128,337

Wheel assembly:
(10,800 kits @
Parts $1,317,600
$122.00/kit)
Rework parts 25,000 (spokes and rims)
Labor 74,250 (5,500 hrs. @ $13.50/hr.)

Total wheel $1,416,850

Final assembly:
(10,800 kits @
Parts $3,963,600
$367.00/kit)
Rework parts 45,000 (miscellaneous parts)

Labor 116,000 (8,000 hrs. @ $14.50/hr.)

Total final assembly $4,124,600

Overhead costs:
Rent $250,000

Office staff 100,000

Depreciation 100,000

Other costs 850,000

Total overhead $1,300,000

Total Annual Costs $11,969,787

Variable Other Costs $ 600,000.00

 Exhibit 1 (PLANNE

Budget based on 10,000

Units Rate
bicycles production
Frame assembly:

113400 31.5 Steel tubing

1375 20.5 Paint

100200 15.25 Labor

Total frame

Wheel assembly:

10800 122 Parts

5500 13.5 Labor

Total wheel

Final assembly:

10800 367 Parts

8000 14.5 Labor

Total final assembly

Overhead costs:
Rent

Office staff

Depreciation

Other costs

Total overhead
Total Annual Costs

Variable
Fixed
 2004 Production Budget

Units

(110,000 lbs. @
$3,300,000 110000
$30.00/lb.)
(1,250 gals. @
25,000 1250
$20.00/gal.)
(100,000 hrs. @
$1,500,000 100000
$15.00/hr.)

$4,825,000

(10,000 kits @
$1,200,000 10000
$120.00/kit)

(5,000 hrs. @
65,000 5000
$13.00/hr.)
$1,265,000

(10,000 kits @
$3,500,000 10000
$350.00/kit)

(7,500 hrs. @
105,000 7500
$14.00/hr.)
$3,605,000

$250,000

100,000

100,000

(estimated to be 2/3
750,000
variable)
$1,200,000
$10,895,000

$ 500,000.00
$ 250,000.00
 Cost Variance
Rate
Price Variance Qty Variance

30
$ 170,100.00 U $ 102,000.00
20 $ 687.50 U $ 2,500.00
15
$ 25,050.00 U $ 3,000.00

$ - U $ -
$ - U $ -
$ - U $ -
120
$ 21,600.00 U $ 96,000.00
$ - U $ -
13 $ 2,750.00 U $ 6,500.00

$ - U $ -
$ - U $ -
$ - U $ -
350
$ 183,600.00 U $ 280,000.00
$ - U $ -
14
$ 4,000.00 U $ 7,000.00

$ 407,787.50 U $ 497,000.00

$0

$0

$0

$100,000

$100,000
U

U
U
U

U
U
U

U
U
U

U
U