MANUFACTURING PROJECT Objectives: 1. Apply accounting manufacturing concepts to an actual product to solidify the learning process. Use proper vocabulary to discuss issues in your written work. 2. Learn how all the numbers fit together 3. Develop decision making analysis techniques Instructions: 1. Choose a manufacturing product from the How It Is Made site on the world wide web. Use this video to provide a basic idea of the materials and process. You will need to enhance the video information to determine what is happening outside the production process. (making up costs within reason) 2. This project should stand on its own include the questions with your submission not just the answers. Identify all numbers. Points will be deducted if I cannot understand what you are trying to say. 3. A copy of the worksheets and questions and answers for the topics covered will need to be turned in. COST CHARACTERISTICS AND BASICS NOTE: THE MORE ACCURATE YOU ARE AT THIS STAGE THE EASIER YOUR JOB WILL BE IN THE LAST CHAPTERS. 1. Create a flow chart of your manufacturing process. Show each activity required to make the product. List the material and labor that are needed for each activity. 2. Enter the materials from the flow chart on Table 1. Determine the quantity per unit (ex pounds required for each unit), cost per quantity (price per pound), and total dollars per unit for each material and then determine whether it is direct or indirect. Total the direct material costs and indirect material costs. Transfer the indirect material costs to the overhead chart (Table 4). 3. Enter the labor from the flow chart on Table 2. Determine the hours per labor type (ex - .5 hours for machine operator). Determine an average rate for this type of labor. Total the cost and determine the direct labor and indirect labor dollars. Transfer the indirect labor costs to the overhead chart (Table 4). 4. Decide what assets (property, plant, and equipment) you will use in your business to make your product and run the business. Enter the cost, life, and annual depreciation for each asset. Place the depreciation amount in either Overhead or a Selling and General & Administrative cost. Transfer the costs to the appropriate table. 5. Add other overhead costs to the indirect materials, indirect labor and factory depreciation (ex rent, insurance, etc.) in Table 4. Total the cost of each line item. Determine the quantity needed and the cost per quantity. It may be helpful to determine the driver for each cost, taking the most used driver as your overhead driver. Add the total annual overhead costs then divide it by the estimated driver. This will be your predetermined overhead rate for the year. 6. Complete the unit cost portion on Table 4. Add the direct materials (Table 1), direct labor (Table 2) and apply the predetermined overhead rate to the driver to determine the per unit overhead cost. 7. Determine the selling costs and G&A costs. It is helpful to determine the monthly cost to calculate the annual cost. You will need these numbers later in the project. TABLE 1: MATERIALS DIRECT VS INDIRECT Materials Quantity per unit Cost per unit Total per unit Direct Indirect TOTAL TABLE 2: LABOR DIRECT VS INDIRECT Job Description Hours Rate Total Cost Direct Indirect TABLE 3: ASSETS DEPRECIATION Asset Cost Annual Depreciation Overhead G & A TOTAL TABLE 4: OVERHEAD COSTS Cost Description Cost Each Total Cost Driver TOTAL Total Annual Overhead Costs/ ________________ Estimated Annual Driver ________________ = Cost per actual driver used: _________________ Unit Cost Direct Materials __________________ Direct Labor ___________________ Overhead ___________________ Total unit cost _________________ TABLE 5: SELLING, GENERAL & ADMINISTRATIVE Cost Monthly Cost Annual Cost Selling Costs G&A Costs JOB COSTING 1. Create a Job Cost Record for your company. Put on a separate piece of paper. Use your textbook for a brief sample (pg. 87 exhibit 3-3). Add to this job cost record the vendors used, and previous month cost. 2. Determine 3 customers and 3 vendors. Customers sell to Vendors buy from _________________ ___________________ _________________ ___________________ _________________ ___________________ 3. Create three jobs one that has not been completed and is left in Work in Process and two that are finished and in Finished Goods. Complete your job cost record for the three jobs. 4. Run these three jobs through t-accounts. Use accounts: Raw Materials, Work in Process, Finished Goods, Overhead, Cost of Goods Sold, Sales, and Accounts Receivable. COST BEHAVIOR ANALYSIS 1. Enter the costs (Materials, Labor, Overhead, Selling and G&A) you have previously determined on the attached worksheet. Identify them as fixed or variable. You will need this for Cost volume Profit Formula. 2. Determine the fixed and variable costs of your mixed costs. (Utilities and maintenance are examples. However, dont get too creative). Estimate the amount of utilities costs per month for 12 months. If it is labor intensive your utilities shouldnt be too high. If it is machine intensive you will have a high amount of utility cost and maintenance cost. COST-VOLUME-PROFIT RELATIONSHIPS 1. Selling Price: estimate a selling price for your product, remembering to cover ALL costs. Start with the selling price of your product in a local store. Subtract the stores estimated Selling, General and Administration and profit from the stores price to determine your selling price. 2. Breakeven point: using the precious developed numbers and Table 6, determine the breakeven point. Be sure to include the fixed component of mixed cost in your fixed costs and the variable component in the variable cost. Show the breakeven data in Sales units and in Sales Dollars. 3. Profit planning: Determine the number of units you must produce to make a profit (not a loss) using 3 assumptions concerning your income (profit). Both in sales units and in sales dollars. a. Aggressive Profit (This will be a great year for your product) b. Conservative Profit (This wont be a good year) c. Average Profit (Some good year, some bad year) 4. Determine the contribution margin ratio using the conservative sales figure 5. Determine your margin of safety 6. Determine your degree of operating leverage TABLE 6: VARIABLE AND FIXED COSTS Costs Variable Fixed Total If a mixed cost, put the fixed amount in the fixed column and the variable amount in the variable column. MANUFACTURING PAPER 1. You will select a problem that needs to be solved in your company. For example: a. You need to raise your price. How much can you raise it? b. You want to buy a new machine. How much can you spend or if you should buy it at all? c. A company has asked you to sell something below your normal selling price. Do you do it? d. A major supplier has raised their prices. Do you make it or do you continue to buy it? e. You just came up with a new idea. Do you put it into production? f. Etc. 2. Use the data that was developed for each chapter to present your solution. 3. Assume you are writing to the board of directors. Assume you need to tell them how your product is produced and summarize your data.