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6. A company makes and sells three technology products: A, B, and C. It has a pro- duction plant with 17,000 square feet of floor
6. A company makes and sells three technology products: A, B, and C. It has a pro- duction plant with 17,000 square feet of floor area, consisting of machine setup (2000 square feet), machining operation (9000 square feet), assembly (4000 square feet), and inspection, packaging, and shipping activities (2000 square feet). The total annual expenditure for the plant is $200,000 for depreciation, $700,000 for utilities, $20,000 for phone and travel services, $150,000 for manufacturing sup- ports, $200,000 for procurement, and $150,000 for supervision. The labor hours and material costs required to manufacture the products are shown in Table 6.17. The labor charges are $25 per hour for machine setup, $35 per hour for machin- ing operation, $30 per hour for assembly, and $20 per hour for inspection, packing, and shipping The company plans to sell Product A at $5000 per unit, Product B at $4,500 per unit, and Product C at $4,100 per unit. All products manufactured during the year TABLE 6.16 Product Costs Product A Product B Product C Number of units produced per month Total material costs per month (S) Labor hours per unit Labor rate per unit (S per hour) 250 400 900 4000 5000 8000 3.5 4 1.5 25 20 30 Machine hour per unit (hour) 1 1 3 TABLE 6.17 Manufacturing Costs for Three Products A C Machine setup (hours) Machine operation (hours) Assembly (hours) Inspection/packing/shipment (hours) Raw materials/unit of product ($) Purchased components/unit of product (S) Outsourced service/unit of product (S) Number of units produced per year 2 3 4 16 12 3 4 2 2 2 950 430 640 100 80 90 20 30 40 900 700 550 Cost Accounting for Engineering Managers 177 are assumed to be sold successfully. Apply the activity-based costing technique to determine the product cost and individual gross margin for each product
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