Manufacturing Cost information

The current material cost for a single brick of products HB 22, HB 27 & HB 29 are $4.00, $5.00 & $6.00 respectively. In the most recent analysis, which includes the new products, the average indirect cost was revealed to be about $5.50 per brick.

Pricing

HBIs sets prices based on the product cost. Their markup is set to cover selling and administrative expenses and return a desired level of profit. Because on the new indirect cost information, the price on the HB22 has increased. The current prices have a 50% markup over the cost as present in Exhibit 1.

Decision making for special orders

As long as there is capacity, HBI will be profitable if they the selling price exceeds the cost to produce and ship the order. This would include the manufacturing cost plus 4 % of sales revenue for commissions and sales bonuses.

Complete and submit the following calculations

1. Using values provided in the case, calculate 1) the production cost, 2) the normal selling price, and proposed minimum price of each brick type.
2. Using a volume-based approach and the cost information for December provided in the exhibits, where each unit of brick is assigned the same costs regardless of the brick type, calculate 1) the production cost, 2) the normal selling price, and proposed minimum price of each brick type.
3. Using material cost as the allocation base for conversion costs and the information in the exhibits about December production, calculate 1) the production cost, 2) the normal selling price, and proposed minimum price of each brick type.
4. Using an activity-based costing approach and information from the exhibits about December production, calculate 1) the production cost, 2) the normal selling price, and proposed minimum price of each brick type based on the manufacturing activities:
   • Use BTU information for assigning fuel cost
   • Choose an approach to assign special grinding costs
   • Use volume-based costing for other costs.
   • Choose an activity base to assign grinding costs.

Make sure to fully show your work !!!!

Exhibit 1
Firebrick Products
Product	Temperature (F)	Average BTUs required per Hour	Hours in the oven per 1000 brick	Material Cost per Brick	Total Material Costs	Current Selling Price per Brick
HB 22	2200	2,100,000	7	$4	$28,000	$14.25
HB 27	2700	2,500,000	4.8	$5	$20,000	$15.75
HB 29	2900	3,000,000	3	$6	$12,000	$17.25
Exhibit 2
Conversion Costs for December
	Total	Firing	Grinding	Hand Grinding	Other
Depreciation	$20,000	$5,000	$3,000	$600	$11,400
Labor	10,000	1,000	0	200	8,800
Energy (gas)	30,000	15,000	1000	200	13,800
Other	12,000	1,000	0	0	11,000
Total	$72,000	$22,000	$4,000	$1,000	$45,000
Exhibit 3
December Customers
Customer	HB 22	HB 27	HB 29	Total Bricks produced and Sold
Automotive	1000	1000	1000	3000
Bio-technical	1000	0	0	1000
Chemical	5000	1000*	0	6000
Diesel	0	2000	1000	3000
Totals	7000	4000	2000	13000

*500 of the HB 27 ordered by chemical also required hand grinding.