Question

Prior to installing a JIT system, Clarendon Company used machine hours to assign maintenance costs to its three products of 6-inch, 8-inch, and 11-inch insulation. The maintenance costs totaled $400,000 per year. The machine hours used by each product and the quantity produced of each product are as follows:

	Machine Hours		Quantity Produced
6-inch	12,000		31,250 rolls
8-inch	20,000		25,000 rolls
11-inch	18,000		12,000 rolls

After installing JIT, three manufacturing cells were created and the cell workers were trained to perform maintenance. Maintenance costs for the three cells still totaled $400,000; however, these costs are now traceable to each cell.

Cell, 6-inch	$100,000
Cell, 8-inch	120,000
Cell, 11-inch	180,000

The maintenance cost per roll of 8-inch insulation before JIT is installed would be

a.$20.00.

b.$16.00.

c.$9.33.

d.$6.40.

Blue Vibrance Company sells a product used in many manufacturing processes. The sales activity involves three activity areas:

Activity Area	Cost Driver and Rate
Order taking	$100 per purchase order
Sales visits	$50 per visit
Delivery vehicles	$1 per delivery mile

The following customer information is given:

	AX	BY	DZ
Units sold	100,000	80,000	60,000
List price	$50	$50	$50
Actual sales price	$45	$48	$50
Number of purchase orders	30	20	10
Number of sales visits	6	5	3
Number of delivery miles	100	80	60

What is the profitability of customer BY?

a.$3,840,000

b.$4,000,000

c.$3,837,670

d.$2,330,000

Answer 1

• All working forms part of the answer
• Question 1

Working		Machine hours
A	6 inch	12,000
B	8 inch	20,000
C	11 inch	18,000
D= A+B+C	Total machine hours	50,000

A	Maintenance Costs	$        400,000.00
B	Total Machine hours	50,000
C= A/B	Maintenance cost per machine hour	$                     8.00
D	No. of machine hours for 8 inch	20,000
E =C x D	Total Cost allocated to 8 inch	$        160,000.00
F	Total Quantity of 8 inch	25,000
G = E/F	Maintenance cost per unit	$                     6.40 = Answer

Correct Answer = Option ‘D’ $ 6.40

• Question 2

Customer BY

		per unit cost	Amount
Sales Revenue	80,000	$                  48.00	$ 3,840,000.00
Costs:
Order taking	100	$                  20.00	$           2,000.00
Sales Visits	50	$                     5.00	$              250.00
Delivery Vehicles	1	$                  80.00	$                 80.00
Profitability			$ 3,837,670.00

Correct Answer = Option ‘C’ $ 3,837,670