Reference no: EM131810462
Assigbnment: AN INTRODUCTORY MANAGERIAL/COST ACCOUNTING
CASE
PART I: SINGLE PRODUCT PRODUCTION COSTS
Background Information
Off Road, Inc. (ORI) produces and sells a single product, a Dune Buggy. A single manufacturing plant in Allentown, Pennsylvania, dedicated to manufacturing Dune Buggies, is expected to run at 75% of capacity during 2020 and produce 10 Dune Buggies per day, which equals projected average daily demand. Production of the 3,650 Dune Buggies (10 Dune Buggies per day X 365 days per year) is expected to result in the costs shown in Exhibit 1 for the company for the year ended December 31, 2020.
Exhibit 1
Off Road, Inc.
Estimated Dune Buggy Production Costs
For the Year Ended December 31, 2020
Projected Production for 2020:
3,650 Dune Buggies (10 Dune Buggies per day X 365 days per year)
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Corporate Office Costs
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Sales and Marketing
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$ 650,000
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|
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General and Administrative
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900,000
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$ 1,550,000
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Plant Costs (Allentown, PA)
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|
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Plant Ad ministration
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$ 400,000
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|
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Building Depreciation (straight -line)
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2,450,000
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Building Utilities
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100,000
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|
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Equipment Depreciation (units of output)
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1,270,000
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|
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Product Design Engineering
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120,000
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|
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Process Design Engineering
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110,000
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Quality Control
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90,000
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Purchasing
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150,000
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Receiving
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40,000
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|
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Material Handling
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70,000
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Raw Materials Used in Production
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9,125,000
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|
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Direct Labor ($25/hour includes benefits)
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6,000,000
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19,925,000
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Other Costs
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|
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Research and Development
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$ 500,000
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|
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Shipping
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925,000
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|
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Warranty costs
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200,000
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1,625,000
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Total
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$23,100,000
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In its best years, the plant ran at an average 95% of capacity (practical capacity: the highest percentage considered attainable), but Dune Buggies are at the mature market stage in the product sales life cycle with 70-75% expected capacity utilization for the remaining life of the plant.
Included in the costs in Exhibit 1 is $700,000 related to development of a new racecar, which, if successful, will be brought to market in 2021. The breakdown of these costs is as follows: Sales and Marketing, $110,000; Product Design Engineering $100,000; Process Design Engineering $90,000; and Research and Development $400,000. While some of the corporate General and Administrative Expense involved work on the feasibility of a new racecar, no records of the corporate-level time or money spent on the project were maintained.
Requiredfor Part I:
Your job is to provide management with multiple (three or more) cost calculations that could be used to set product price for the current year (2020) and to explain/justify the amounts you calculate. You are to calculate cost, not to suggest the sells price. To keep matters simple, you may assume that all estimated amounts are accurate (i.e., you should not change the estimated amounts and you do not need to include any extra amount to cover unexpected additional costs).
Individually, provide two or more cost computations to your fellow team members using the private message board for your team. You may not simply agree with a computation provided by one of your fellow team members. You must present your own (different) cost computations. Participation by every team member is important for individual grades on team projects.