51-402 Advanced Cost Accounting Chapter 13 Graded Assignment Spring 2022 Addington, Incorporated, makes a financial calculator, which has 90 unique components. Addington sells 7,500 calculators per month at $91 each. The manufacturing costs per unit are $58 25, or $436,875 per month. Addington uses activity-based costing, and the cost-pool information is given below: Activity Cost Driver Cost per Unit of Cost Driver 1. Machining Costs Machine hours $5.85 per MH Machining of components 2. Testing Costs Testing hours $2.60 per TH Testing components and final product (each individual unit is tested) 3. Rework Costs Units reworked $26.00 per unit Correcting and fixing errors and defects 4. Order Costs Number of orders $27.30 per order Ordering of components 5. Engineering Costs Engineering hours $45.56 per EH Designing and managing processes Additional Information: Monthly Total Manufacturing Costs "Testing time per unit is 2.5 hours Direct Materials used $253,500 Direct Manufacturing Labor 39,000 "Rework is required by 10% of total units Machining Costs (fixed) 43,875 Testing Costs 48,750 "Addington places 2 orders per month for Rework Costs 19,500 each component Ordering Costs 4,914 Engineering Costs (fixed) 27 336 "It takes one machine hour to make one Total Manufacturing $436,875 unit Costs "It takes 0.08 engineering hours per unit In response to a competitive market. Addington must reduce its sales price to $80.60 per unit, and its costs by $10.40 per unit. No additional sales are expected at this lower price, due to the market, but Addington would lose significant sales it it does not reduce the sales price. . . . Production has been asked to cut its costs by $7.80 per unit: improvements in manufacturing efficiency are expected to yield a net savings of $2.60 per calculator. The Design Department has proposed a new version that reduces the number of components to 56, and simplifies the testing process. Other expected effects of the redesign are: Direct materials cost per unit will decrease by $2.86 Direct manufacturing labor costs per unit will decrease by $0.65 Machining capacity will not be affected, but machine time per unit will drop by 20% Testing time per unit will drop by 25% Due to simplification of design, rework will decline to 4.5% of total units produced Engineering capacity will not be affected by the design change Rates per unit of the cost drivers for overhead will not be affected by the design change. Required: (1) Calculate Addington's manufacturing cost per unit of the new version of the product (2) Will the new design achieve the per-unit cost-reduction targets that have been set for the manufacturing costs of the new version? Show you calculations to justify your answer. (3) The data describe two strategies to reduce costs, (a) improving manufacturing efficiency and (b) redesigning the product. Which strategy has more impact on Addington's costs? Explain briefly
