Multiple-Product Value Streams, Average Costing, ABC, DBC

Renlund Company is transitioning to a lean manufacturing system and has just finalized two order fulfillment value streams. One of the value streams has two products, and the other has four products. The two-product value stream produces precision machine parts, and the four-product value stream produces machine tools. Before moving to the value-stream structure, Renlund had a well-developed ABC system (one that used all duration drivers) and had experienced good success with the more accurate product costs. Management wanted to be sure that the average costing approach of value-stream costing did not produce distorted product costs. Accordingly, the most recent weekly activity data were provided for the two-product value stream to see how well average costing worked (see next); however, management did not want to continue using ABC because of its intense data demands and the cost of updating as changes unfolded due to lean practices. In the following table, the driver for each activity is a duration driver (time driven).

Machine Parts Value Stream For the Coming Week
Activity		Conversion Cost	Part S55 (hours used)	Part K66 (hours used)	Total Activity Hours
Order Processing	$	54,000	900	2,700	3,600
Purchasing		108,000	300	450	750
Lathe		162,000	720	480	1,200
Milling		300,000	1,200	1,800	3,000
Drilling		216,000	1,080	2,520	3,600
Assembly		105,000	1,800	1,200	3,000
Inspection		60,000	2,400	600	3,000
Shipping		27,000	900	300	1,200
Invoicing		48,000	1,050	1,200	2,250
Total	$	1,080,000	10,350	11,250	21,600

During the week, the machine parts value stream expects to produce and ship 15,000 units of S55 and 45,000 units of K66. Since materials cost is calculated separately, the main concern is with the unit conversion cost.

Intrigued by the DBC product costing model, the management of Renlund wants to know the effect on unit costs if the non-value-added activity of inspection is eliminated. Using DBC, provide the answer that Renlunds management is seeking. Calculate cycle time to three decimal places; however, round all other intermediate calculations to two decimal places, as well as your final answers.

S55	$fill in the blank per unit
K66	$fill in the blank per unit