In: Accounting
Must be completed using Excel.
The Bertrand company manufactures radiators for the automotive industry. It sells its entire annual production of 80,000 units at a price of $ 80 per unit. The company wishes to assess the possibility of modifying its manufacturing process. This modification would reduce direct labor time by 30 minutes, which represents 25% of the time required in Direct Labour per unit. Currently, the time required to make a radiator is 2 hours and the hourly rate is $ 12 / hour. In addition, this would influence variable manufacturing overheads, as it has been established that these vary according to direct labor time. In return, fixed manufacturing overhead costs would increase by $ 240,000 per year.
Additional data:
Raw materials: $ 10 per unit
Direct Labour rate: $ 12 per hour
General manufacturing costs: Variable: $ 8 an hour & Fixed: $ 720,000
Selling fees: Variable: 10% of the sale price & Fixed: $ 640,000
As the company sells all of its production, there is no inventory of the start and end.
We ask :
A) Prepare a global analysis by presenting it using the full cost method
B) Prepare a global analysis by presenting it using the variable cost method
C) Prepare a differential analysis of the effects of this change
D) If the inventory at the start was 5,000 units and the inventory at 8,500 units, what would have been the difference in profit between the full cost method and the variable cost method? Use the current situation figures to do your calculations.