03. Trident Machining Products is discrete automotive component supplier. TMP has been approached by Bhusan Industries with a proposal to significantly increase productie apart * to a total anual quantity of 1,00,000 is. Blusan believes that by increasing the volume of production of the part TMP should realize the benefits of economies of scale and hence should accept a lower price then the current Rs.6.20 perit. Currently, TMP's gross margin of Part"X" is 3.2%, computed as follows: Particulars Total Per it Direct Materials Rs 1.5 R 150 Indirect manufacturing Rs. 4,500,000 Rs 450 overheads (300% of direct materials Total cost Rs 6,00,000 Rs 6.00 Selling price Rs 20 Cross margin Rs 0.20 Gross margin percentage 3.25 Part seems to be marginally profitable product. If additional volume of production of the part is to be added TMP management believes that the sales price must be increased not reduced requested by Bhusan. The management of TMP sees this quoting station as an excellent opportunity to examine the effectiveness of their traditional costing system versus an ABC system. TMP decided to implement a two-stage ABC system. A team consisting of accounting and engineering analysis has developed a process-based ABC system. For example, the total anual cost for the quality assurance activity is estimated to be Rs 8,00,000 and the total quantity of the cost driver number of pieces scrapped" is estimated to be 10,000. Thus, the cost per piece serapped is Rs 80. Total activities and cost per activity driver has been shown below: Activities Cost per Driver Quality Assurance Production schedule Setups Shir Shippu Administratie Production RS piece Rs 100 persetup Rs. 1200 stup Rs. Sentainer Rs. 50 per shipment Rs. 150 per machine hour. The consumption rate of cost drivers in relation to total production of 1,00,000 units is given Activities No. of Cost Drivers Quality assurance (Pieces scrapped CLOI Production schedullil'is) 0.00012 Setups No. 0.00012 Shipping (Containess shipped) Shipping Administratie (Shipments) 0.001 Production (Machine Hours) 0.005 Required: 1. Prepare the ABC MAP for TMP 2. Prepare the cost statement calculating unit cost and gross margin percentage of partit ABC approach 3. Based on ABC results, what course of action would you recommend regarding the proposal of Bhusan Industries? 03. Trident Machining Products is discrete automotive component supplier. TMP has been approached by Bhusan Industries with a proposal to significantly increase productie apart * to a total anual quantity of 1,00,000 is. Blusan believes that by increasing the volume of production of the part TMP should realize the benefits of economies of scale and hence should accept a lower price then the current Rs.6.20 perit. Currently, TMP's gross margin of Part"X" is 3.2%, computed as follows: Particulars Total Per it Direct Materials Rs 1.5 R 150 Indirect manufacturing Rs. 4,500,000 Rs 450 overheads (300% of direct materials Total cost Rs 6,00,000 Rs 6.00 Selling price Rs 20 Cross margin Rs 0.20 Gross margin percentage 3.25 Part seems to be marginally profitable product. If additional volume of production of the part is to be added TMP management believes that the sales price must be increased not reduced requested by Bhusan. The management of TMP sees this quoting station as an excellent opportunity to examine the effectiveness of their traditional costing system versus an ABC system. TMP decided to implement a two-stage ABC system. A team consisting of accounting and engineering analysis has developed a process-based ABC system. For example, the total anual cost for the quality assurance activity is estimated to be Rs 8,00,000 and the total quantity of the cost driver number of pieces scrapped" is estimated to be 10,000. Thus, the cost per piece serapped is Rs 80. Total activities and cost per activity driver has been shown below: Activities Cost per Driver Quality Assurance Production schedule Setups Shir Shippu Administratie Production RS piece Rs 100 persetup Rs. 1200 stup Rs. Sentainer Rs. 50 per shipment Rs. 150 per machine hour. The consumption rate of cost drivers in relation to total production of 1,00,000 units is given Activities No. of Cost Drivers Quality assurance (Pieces scrapped CLOI Production schedullil'is) 0.00012 Setups No. 0.00012 Shipping (Containess shipped) Shipping Administratie (Shipments) 0.001 Production (Machine Hours) 0.005 Required: 1. Prepare the ABC MAP for TMP 2. Prepare the cost statement calculating unit cost and gross margin percentage of partit ABC approach 3. Based on ABC results, what course of action would you recommend regarding the proposal of Bhusan Industries
