Allocate Costs

You have been asked to look at production options for the Android01 since production methods and allocation of costs have implications for cost-per-unit. There are two alternative methods of production being considered.

Production A

Cost are as follows:

- $4.5 million per year in rent for factory and machinery

- Components and labor in the amount of $12 million will produce 300 units

Production B

In an alternative production method, the production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and are to be assigned at the rate of 30 percent to Android01 and 70 percent to Processor01.

The variable cost of production facilities and service divisions is $20 million per year. The square footage of factory space and labor needed for the production of 500 units of Processor01 and 300 units of Android01 are listed below:

	Sp. Ft.	Labor
Processor01 (500 units)	70,000	120
Android01 (300 units)	30,000	80

The remaining cost for the production of Android01 is for components, at $25,000 per unit.

Question 1: In Method B, what would be the cost per unit of producing Android01 using factory space as the allocation basis? What would be the cost per unit using labor as the allocation basis?

Be sure to show your calculations in Excel and provide a narrative analysis which summarize the results of your analysis and make recommendation for the benefit of the company.