Question

You are to prepare a cost estimate for producing 1000 assemblies. Each assembly consists of a cylindrical tube, two identical end covers, and a purchased bracket. The brackets cost $8.25 each. Each tube costs $180 for the casting and requires 2.5 standard hours of machining. It requires 12 hours to set up the machining operations and a setup is good for the machining of 500 castings. The end covers are produced on a punch press that requires 1.2 hours per cover of run time and 4.0 hours for press setup. Press setup is good for producing 400 pieces. Material costs per cover is $.50. The direct labor rate is $16.00 per hour. Manufacturing overhead is 150 percent of direct manufacturing labor. Material overhead is 3 percent of the total material and subcontract amount. General and administrative costs are 15 percent of labor and material with appropriate overhead.

What is the calculated unit cost through general and administrative costs? Show your calculations

You are to prepare a bid for producing 100 brackets. The brackets are made on a punch press and screen printed with a part number. All screen printing is done at one time, but the brackets are made in batches of 40. Punch press set up time is 2 hours per setup and .05 hour per print. Screen printing required is 6 minutes per bracket. Assume no attrition or learning curve on either process. Material cost is $.50 per piece. Direct labor rate is $15.00 and overhead is 200 percent of direct labor. G&A is 30 percent of total material, labor, and overhead costs. A 10 percent profit is expected.

                What is your total bid price for the 100 brackets? Show your calculations.

The John Day Company proposed a general and administrative (G&A) rate of 16.8 percent of total manufacturing costs on a 20x8 proposal. The contractor provided the following data upon the request of the contract negotiator who desired to analyze the rate.

1. Does the proposed 20x8 G&A rate appear to be reasonable for the estimated total manufacturing group? Include your rationale.
2. If not, based on historical information above, what G&A rate appears reasonable? Explain.

Answer 1

	Given:
	1 Assembly comprises:	No./ Assembly
a.	Tube	1
b.	End-cover	2
c.	Brackets	1

1	Material cost calculations:
a.	Cost of Tube/ Assembly	Amount $
	Cost of Casting for Tube/Assembly $	180
	Therefore, for 1000 Assemblies	1,80,000
b.	Cost of End cover set/ Assembly
	No. of end-covers / assembly	2
i	Cost of 1 end-cover $/Unit	0.5
ii	Cost of 2 end-covers (2*$0.5)	1
	Cost of end-cover set/ assembly	1
iii.	Cost of 1000 end-cover sets for 1000 Assemblies	1,000
c.	Cost of Brackets
	Cost per Bracket $ / Unit per Assembly	8.25
	Therefore, cost of 1000 brackets for 1000 Assemblies	8,250
A	Material Cost Summary for 1000 Assemblies	Amount $
1	Tube - See working 1a	1,80,000
2	2 End covers - See Working 1 b	1,000
3	Brackets - See Working 1c	8,250
A	Total Direct Material Cost for 1000 Assemblies	1,89,250

2	Direct Labor cost calculations:
a.	Tubes for 1000 Assemblies:
i	Machining Time (in Hours)
	No. of Standard hours of machining per Tube	2.5
	Therefore, Machining Hours fir 1000 Tubes	2,500
ii.	Set-up Time
	Set-up time required for machining operations (in Hrs)	12
	Set-up time for 1000 assemblies ( as each set-up is good for 500 Castings or 500 Assemblies. So, only 1 Set-up will be required) : 12*1	12
a.	Therefore, Total Machining and Set-up time for 1000 Tubes for 1000 Assemblies (i+ii)	2,512
b.	Direct Labor Time for end-covers
i.	Run-Time on Punch press
	Run-time per end-cover	1.2
	Run-time for 2 end-covers (or set of end-covers)	2.4
i.	Therefore, Run-Time for 1000 end-cover sets	2400
ii.	Set-up time:
	No. of hours per Set-up	4
	1 set-up is good for	400 pieces
	No. of end-cover pieces in 1000 assemblies (2 end-covers per assembly)	2000
	Therefore, No. of set-ups for 2000 pieces (2000/400 = 5 - 1 = 4 set-ups	4
	Therefore, total Set-up time for 1000 Assemblies (4*5)	16
b.	Therefore, Direct Labour Time (hrs) for end-covers (i+ii)	2416
	Therefore, Direct Labor Hours for 1000 Assemblies (a+b)	4,928
	Direct Labor Rate / Hour (in $)	16
b.	Therefore, Direct Labor Cost for 1000 Assemblies	78,848
c.	Manufacturing Overhead @ 150% of Direct Labour Cost (150% * $79,104)	1,18,272
d.	Material overheads:	Amount$
i	Direct Material cost (see a above)	1,89,250
ii.	Direct Labour cost (as these Machining and Punch Press are done on sub contract)	78,848
	Total Material + Sub-contract	2,68,098
d.	Therefore, Material Overhead at 3% of Material + Sub Contract	8042.94
e	General & Administrative costs:	Amount $
i	Direct Material (see a above)	1,89,250
ii	Direct Labor cost ( see b above)	78,848
iii	Appropriate overhead on Material ( i.e.,Material Overhead - see d above)	8042.94
	Total Base for General and Administrative costs	2,76,141
e	Therefore, General and Administrative cost @ 15% of above base	41,421.14
S.No.	Unit Cost	Amount $
i	Direct Material cost	1,89,250
ii	Direct Labor cost	78,848
iii	Material Overhead	8042.94
iv	Manufacturing Overhead	1,18,272
v	Total Manufacturing Cost ( Product Cost) : i+ii+iii+iv	3,94,413
vi.	General and Administrative cost	41,421.14
vii	Total cost ( (v+ vi)	4,35,834.08
viii	Total number of Assemblies	1000
Answer	Total Unit Cost ( vii/viii)	435.83
Q 2	Price Bid for 100 Brackets
S.No.	Particulars	Amount $
i.	Material cost of 100 Brackets @ $ 0.50/ Unit	50.00
ii.	Direct Labor cost ( See Note f below)	285.00
iii.	Overheads @ 200% of Direct Labor Cost	570.00
iv.	Total Manufacturing Cost ( I + ii+iii)	905.00
v.	General & Administrative cost @ 30% of iv above	271.50
vi.	Total cost for 100 Brackets (iv + v)	1,176.50
vii.	Profits @ 10% of Price Bid ( 10% of viii)	130.72
viii.	Total Price Bid for 100 Brackets ( 100/90* $ 1,176.5)	1,307.22
Note f.	Computation of Direct Labor cost for 100 Brackets
	Direct Labor Hours for Punch Press
	Punch Press time / bracket (in hrs)	0.05
i	Punch Press time for 100 brackets ( 100*0.05) - in hours	5
ii	Set-up time
	No of brackets per batch	40
	No. of batches for 100 Brackets (100/40)	2.5
	Time for each set-up / batch - in hours	2
ii	No. of batches for 100 units -Every batch of 40 Brackets will need a set up time of 2 hrs. So, 100 brackets will need 2 set-ups. Therefore, set-up time for 100 brackets: 2* 2 = 4 hrs	4
iii	Direct Labour hours in Punch Press for 100 Brackets (I + ii)	9
iv	Direct Labor Hours for Printing of Part numbers on Brackets:
	Time required for printing per bracket ( 6 min / bracket or 6/60 of 1 hr)	0.1
iv	Therefore, printing time for 100 brackets (100*0.10) - in hours	10
v	Therefore, Total Direct Labor Hours for 100 brackets (iii + iv)	19
vi.	Direct Labor Rate / Hour in $	15
vii.	Therefore, Direct Labor Cost for 100 Brackets (v * vi)	285