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Exhibit 2 Model Year Budgets for the ACF ($ 000) MODEL YEAR 1987 1988 1989 1990 Sales Fuel Tanks $70,278 $75,196 $79,816 $83,535 Manifolds 79,459

Exhibit 2 Model Year Budgets for the ACF ($ 000)
MODEL YEAR
1987 1988 1989 1990
Sales
Fuel Tanks $70,278 $75,196 $79,816 $83,535
Manifolds 79,459 84,776 89,323 93,120
Doors 41,845 45,174 47,199 49,887
Muffler/Exhausts 62,986 66,266 0 0
Oil Pans 75,586 79,658 0 0
Total $330,154 $351,071 $216,338 $226,542
Direct Material
Fuel Tanks $15,125 $15,756 $16,312 $16,996
Manifolds 31,696 33,016 34,392 35,725
Doors 14,886 15,506 16,252 16,825
Muffler/Exhausts 28,440 29,525 0 0
Oil Pans 32,218 33,560 0 0
Total $122,365 $127,363 $66,956 $69,546
Direct Labor
Fuel Tanks $4,169 $4,238 $4,415 $4,599
Manifolds 5,886 6,027 6,278 6,540
Doors 2,621 2,731 2,844 2,963
Muffler/Exhausts 5,635 5,766 0 0
Oil Pans 6,371 6,532 0 0
Total $24,682 $25,294 $13,537 $14,102
Overhead by Account Number
1000 $7,713 $7,806 $5,572 $5,679
1500 6,743 6,824 5,883 5,928
2000 3,642 3,794 2,031 2,115
3000 2,428 2,529 1,354 1,410
4000 8,817 8,888 7,360 7,433
5000 24,181 24,460 20,063 20,274
8000 5,964 5,946 3,744 3,744
9000 6,708 6,771 5,948 5,987
11000 5,089 5,011 3,150 3,030
12000 26,936 28,077 15,027 15,683
14000 9,733 9,784 8,025 8,110
Total $107,954 $109,890 $78,157 $79,393
Factory Profit $75,153 $88,524 $57,688 $63,501
Sales 106% 66% 69%
Direct Materials 104% 55% 57%
Direct Labor 102% 55% 57%
106% 66% 69%
1000 101% 72% 74% 1000 $ 1.10
1500 101% 87% 88% 1500 $ 1.33
2000 104% 56% 58% 2000 $ 0.85
3000 104% 56% 58% 3000 $ 0.85
4000 101% 83% 84% 4000 $ 1.27
5000 101% 83% 84% 5000 $ 1.27
8000 100% 63% 63% 8000 $ 0.96
9000 101% 89% 89% 9000 $ 1.35
11000 98% 62% 60% 11000 $ 0.94
12000 104% 56% 58% 12000 $ 0.85
14000 101% 82% 83% 14000 $ 1.26

1 The overhead allocation rate used in the 1987 model year strategy was 435% of direct labor dollars. Calculate the overhead allocation rate using the 1987 model year budget. Why do you get different numbers?

2 Calculate the overhead allocation rate for each of the model years 1988 through 1990. Are the changes since 1987 in overhead allocation rates significant? Why have these changes occurred?

3 Consider product 1 Product 2

Selling Price $62 $54

Standard Material Cost $16 $27

Standard Labor Cost $ 6 $3

Calculate the expected gross margins as a percentage of selling price on each product based on the 1988 and 1990 model year budgets, assuming selling price and material and labor cost do not change from standard.

4 Are the product costs reported by the cost system appropriate for use in the strategic analysis? What decision are you trying to make in the strategic analysis?

Please explain how you got your answers

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