Discussion topic: What does the difference suggest we might be doing wrong with our bids? And if you were the CFO what activity area would you look to improve and give a few generic examples of options for improvement.

please make your own statement.

Problem: Lutz, Inc. produces three products: Quality, Superior, and Superb. The Lutz cost accounting system applied Conversion Costs using a Plant-Wide Application Rate using Direct Labor Hours as the Cost Driver. Lutz is thinking of employing an ABC system for Conversion Costs.

Lutz concluded that its plant had six activities with the following Cost Drivers and costs budgeted for the upcoming year:

Activity AreaBudgeted CostsCost DriverMaterial Handeling$258,400 Number of PartsProduction Scheduling$114,000 Number of OrdersSetups$160,000 Number of SetupsMachinery Cost and Maint$3,510,000 Machine HoursFinishing$1,092,000 Direct Labor HoursPackaging/Shipping$190,000 Number orders ShippedTOTAL$5,324,400 It is estimated that there will be 54,600 Direct Labor Hours in the upcoming yearThe following information summerizes Lutz' Projections of the Cost Drivers listed above by Product typeCost DriverQualitySuperiorSuperbUnits to be produced10,0005,000800# of parts per unit3050120Production orders30070200Production Setups1005050Machine Hrs per unit7715DLH per unit2512Orders shipped1,0002,000800Direct Labor$69.11 $72.50 $83.22 Direct Materials$83.00 $97.00 $115.00

Lutz uses a 30% markup above cost to bid for their projects. What are the costs they currently use with the Plant wide model?

What Should the prices be if we used ABC?