Reference no: EM131019334

Problem 3

Braithwaite Company manufactures two types of kayaks, the Intrepid and Explorer. Previously, the company has allocated manufacturing support costs using a plant-wide rate based on direct labour hours. It has been suggested that the company consider assigning support costs to the equipment using activity-based costing. The following data has been collected:

Item	Intrepid	Explorer
Units produced and sold	50,000	20,000
Direct labour hours used	25,000	20,000
Direct labour cost	$75,000	$60,000
Number of times each unit is handled	3	5
Number of cuts per unit	2	6
Number of design changes (total)	5	10
Number of product setups (total)	30	40

The actual manufacturing support costs incurred were as follows:

Cost Pool	Related Costs
Handling	$   500,000
Cutting	1,500,000
Design changes	600,000
Setups	20,000
Total	$2,620,000

The direct material cost for the Intrepid model is $500 per unit, and for the Explorer model, $700 per unit.

Required:

1. Determine the unit cost of each product using direct labour hours to allocate all manufacturing support costs.

2. Determine the unit cost of each product using activity-based costing.

3. Explain why the unit cost is different in requirements 1 and 2. 

Problem 6

Whyte Trucks Inc. produces large, heavy duty trucks. It is attempting to reduce manufacturing costs. It polled customers with respect to product requirements and obtained the following information:

Category	Importance
Driver comfort	30
Fuel efficiency	50
Safety	20

Whyte identified the following target costs for various truck components:

Function group	Target cost
Frame	$30,000
Engine	50,000
Body	40,000
Other	80,000

Whyte engineers produced the following quality function deployment matrix:

		Function group
Categories		Frame	Engine	Body	Other
Driver comfort		.2		.2	.6
Fuel efficiency			.6	.3	.1
Safety		.3	.1	.2	.4

Required: Determine which function groups are candidates for cost reduction.