Apply the Concepts Kramer Company currently produces a high-tech medical product with 20 parts. Design engineering has produced a new configuration for the product that requires only eight parts. Current activity capacity and demand (20-part configuration) and expected activity demand (8-part configuration) are provided. Current Expected Activity Activity Activity Demand Activity Driver Activities Capacity Demand Material usage Number of parts 300,000 300,000 15,000 Assembling parts Direct labor hours 15,000 15,000 7,500 Number of orders Purchasing parts 20,000 15,000 9,750 Additionally, the following activity cost data are provided: Material usage: $3 per part used; no fixed activity cost. Assembling parts: $12 per direct labor hour; no fixed activity cost. Purchasing parts: Four salaried clerks, each earning a $30,000 annual salary; each clerk is capable of processing 5,000 purchase orders. Variable activity costs: $0.50 per purchase order processed for forms, postage, etc. 1. Calculate the cost reduction produced by the new design (round to the nearest dollar) Cost reduction 2. Suppose that 15,000 units are being produced and sold for a current price of $450 per unit and that the price per unit will be reduced by the per unit savings. The new price for the eight-part configured product is (round to the nearest cent): New price 3. What if the expected activity demand for purchase orders was 4,600? Calculate the effect on the answers in Requirements 1 and 2 (round your cost reduction to the nearest dollar and new price to the nearest cent): Cost reduction New price Apply the Concepts Kramer Company currently produces a high-tech medical product with 20 parts. Design engineering has produced a new configuration for the product that requires only eight parts. Current activity capacity and demand (20-part configuration) and expected activity demand (8-part configuration) are provided. Current Expected Activity Activity Activity Demand Activity Driver Activities Capacity Demand Material usage Number of parts 300,000 300,000 15,000 Assembling parts Direct labor hours 15,000 15,000 7,500 Number of orders Purchasing parts 20,000 15,000 9,750 Additionally, the following activity cost data are provided: Material usage: $3 per part used; no fixed activity cost. Assembling parts: $12 per direct labor hour; no fixed activity cost. Purchasing parts: Four salaried clerks, each earning a $30,000 annual salary; each clerk is capable of processing 5,000 purchase orders. Variable activity costs: $0.50 per purchase order processed for forms, postage, etc. 1. Calculate the cost reduction produced by the new design (round to the nearest dollar) Cost reduction 2. Suppose that 15,000 units are being produced and sold for a current price of $450 per unit and that the price per unit will be reduced by the per unit savings. The new price for the eight-part configured product is (round to the nearest cent): New price 3. What if the expected activity demand for purchase orders was 4,600? Calculate the effect on the answers in Requirements 1 and 2 (round your cost reduction to the nearest dollar and new price to the nearest cent): Cost reduction New price
