Activity-Based Ufe-Cycle Costing Kagle design engineers are in the process of developing a new green product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both it and activity-based accounting Information (made possible by a recent pilot study producing the activity-based data) Unt-based system: Variable conversion activity rate: 3110 per direct labor hour Material usage rate: $20 per part ABC system: Labor usage: $20 per direct labor hour Material usage direct materials): $25 per part Machining: 580 per machine hour Purchasing activity: $170 per purchase order Setup activity: $3,100 persetup hour Warranty activity: $650 per returned unit (usually requires extensive rework) Customer repair cost: $30 per repair hour (average) Activity and Resource Information (annual estimates) Design A Design B Units produced 20.000 20,000 Direct material usage 310,000 parts 50,000 hours Labor usage 285,000 parts 120,000 hours 60,000 1,500 Machine hours 50.000 Purchase orders 2,000 Setup hours 600 Returned units 1,300 300 Repair time (customer 2,200 Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis 2. Select the lower-cost design using ABC analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to $10 per unit for Design A and $40 per unit for Design B? Compute the Post-purchase cost for each design Post-Purchase Cost Design A Design Assume that the environmental cost is borne by society. Now which is the better design? Activity-Based Ufe-Cycle Costing Kagle design engineers are in the process of developing a new green product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed $550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both it and activity-based accounting Information (made possible by a recent pilot study producing the activity-based data) Unt-based system: Variable conversion activity rate: 3110 per direct labor hour Material usage rate: $20 per part ABC system: Labor usage: $20 per direct labor hour Material usage direct materials): $25 per part Machining: 580 per machine hour Purchasing activity: $170 per purchase order Setup activity: $3,100 persetup hour Warranty activity: $650 per returned unit (usually requires extensive rework) Customer repair cost: $30 per repair hour (average) Activity and Resource Information (annual estimates) Design A Design B Units produced 20.000 20,000 Direct material usage 310,000 parts 50,000 hours Labor usage 285,000 parts 120,000 hours 60,000 1,500 Machine hours 50.000 Purchase orders 2,000 Setup hours 600 Returned units 1,300 300 Repair time (customer 2,200 Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis 2. Select the lower-cost design using ABC analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to $10 per unit for Design A and $40 per unit for Design B? Compute the Post-purchase cost for each design Post-Purchase Cost Design A Design Assume that the environmental cost is borne by society. Now which is the better design