Question

A value stream has three activities and two products. The units produced and shipped per week are 50 of the deluxe model (Model A) and 150 of the basic model (Model B). The resource consumption patterns are shown as follows: Model A Model B Costs of Value- Stream Activities Cell manufacturing 2,360 min. 7,080 min. $ 94,400 Engineering 65 hrs. 221 hrs. 24,596 Testing 105 hrs. 273 hrs. 26,838 Total $ 145,834

Required:

1. Calculate the ABC product cost for Models A and B. If required, round your answers to the nearest cent.

Product Cost Per Unit

Model A $ per unit

Model B $ per unit

2a. Calculate the value-stream average product cost. If required, round your answer to the nearest cent.
$ per unit

Answer 1

1:Calculate the ABC product cost for Models A and B

Cell manufacturing: Driver is conversion time (in minutes)

=$94,400/(2,360 + 7,080)

= $10 per minute

Engineering: Driver is engineering hours

=$24,596/(65 + 221)

= $86 per engineering hour

Testing: Driver is testing hours:

=$26,838/(105 + 273)

= $71 per test hour

Now calculate product costs as under

Particulars	Model A	Model-B
Cell:(A=10*2,360,B=10*7,080)	23,600	70,800
Engineering:(A=86*65,B=86*221)	5,590	19,006
Testing:(A=71*105,B=71*273)	7,455	19,383
Total   A	36,645	109,189
Units    B	50	150
Unit cost (Cost/Units) A/B	$732.9	$727.93

2-a

Average cost = $145,834/200

= $729.17

The average cost approximates the ABC costs with very little error, suggesting that the two value-stream products are quite similar. Alternatively, the ABC cost is about the same for each model, suggesting significant homogeneity and thus the correct specification of the value stream