Objective: Demonstrate understanding of Generalized Decision-Making Framework and Manufacturing Cost Flows Deliverables: 1) Using the Income Statement" template provided, identify the benefits, costs, and value of each alternative. a. Fill out the Income Statement for the Automated Process alternative. Note that the Status Quo data is already provided. Use the Status Quo alternative Income Statement as a reference for which data to input/calculate. b. Using the outlined cells to the right of each Income Statement line item, identify those data that are relevant to the decision at hand with a "Yes" or "No" c. Write your recommendation to Fergie Ferguson of which alternative (Automated Process or Status Quo) in the cell box underneath the Income Statement. Remember to be specific and to support your recommendation with both quantitative and qualitative justifications. 2) Using the Inventory Cost Flows template provided, calculate the end-of-year Raw Material, Work-in-process, and Finished Goods inventory balances for the Automated Process alternative. Note that the Status Quo alternative data is already filled out and calculated for you as a reference. 3) Using the F-350 Thunderbird MOH template provided, calculate the Manufacturing Overhead allocated to the F-350 Thunderbird truck product line under the Automated Process alternative. Note that the Status Quo Predetermined Overhead Rate and Manufacturing Overhead allocated to the F-350 Thunderbird is filled out and calculated for you as a reference. a. Using the Automated Process Manufacturing Overhead and Direct Labor Hours estimates, calculate the Predetermined Overhead Rate. b. Use your Predetermined Overhead Rate calculation from above to calculate how much Manufacturing Overhead would be allocated to the F-350 Thunderbird product line under the Automated Process alternative. C. In the first cell box underneath the Manufacturing Overhead Cost Allocations, explain why there is a difference between the manufacturing overhead allocated to the F-350 Thunderbird product line under the Automated Process and Status Quo alternatives. d. In the second cell box underneath the Manufacturing Overhead Cost Allocations, comment on whether you believe the manufacturing overhead allocation is appropriate under each alternative. Explain your reasoning. Case Description: You are consulting for the Kentucky Truck Plant Manager, Fergie Ferguson. Fergie is considering switching from her "Status Quo" process that primarily utilizes a relatively balanced amount of labor and automation to a process that relies heavily on advanced robotics and other heavily automated technologies ("Automated Process). Both processes would accommodate the forecasted units sold (see Appendix for that assumption). Fergie has provided you with as the "Status Quo" forecasted Income Statement and Inventory Account Balances (see Template). She has also provided you with data relating to the Automated Process alternative (see Appendix). She has asked for you to help her to determine whether to continue with the Status Quo operations or to switch to the Automated Process alternative. She is primarily interested in maximizing the profitability of her plant. Fergie is also interested in how the Automated Process alternative might change the end-of- year planned Raw Material, Work-in-process, and Finished Goods inventory balances. Fergie's plant manufactures eight (8) different models of F-series truck. Fergie is particularly interested in the costs associated with a specialty high-end truck, called the F-350 Thunderbird. The F-350 Thunderbird model is unique in that it is manufactured using a unique, highly labor- intensive production process. Regardless of whether Fergie opts to switch to the Automated Process, the F-350 Thunderbird will continue to be manufactured using its own unique production process. That is, the F-350 Thunderbird manufacturing process will be unaffected by Fergie's decision whether to switch to the Automated Process. Given this, Fergie is interested in how to account for the manufacturing overhead that would be allocated to the F- 350 Thunderbird truck product line under each alternative. Appendix: Status Quo 300,000 units sold Average Selling Price = $50,000 per truck Expected Cost of Goods Sold o $22,000 Direct Materials per truck o $1,650 Direct Labor per truck o $1,800 Variable Manufacturing Overhead per truck o $1,385,000,000 Total Fixed Manufacturing Overhead Expected Selling, General, and Administrative (SG&A) Costs o $3,900 Variable SG&A per truck o $3,030,000,000 Total Fixed SG&A Beginning Inventory Balances: o Raw Materials = $75,000,000 o Work-in-Process = $350,000,000 o Finished Goods = $450,000,000 Manufacturing Cost Flows: o Raw Materials Purchased = $6,660,000,000 o Raw Materials introduced into Production = $6,650,000,000 Direct Labor Used = $500,000,000 o Manufacturing Overhead Allocated to Work-in-Process = $1,931,000,000 o Cost of Goods Manufactured = $9,032,000,000 Pre-determined Manufacturing Overhead Rate Data (per Direct Labor Hour) o Estimated Total Manufacturing Overhead = $1,925,000,000 o Estimated Direct Labor Hours Used = 10,000,000 hours Automated Manufacturing Process 300,000 units sold Average Selling Price = $50,000 per truck Expected Cost of Goods Sold $22,000 Direct Materials per truck o $1,290 Direct Labor per truck o $1,350 Variable Manufacturing Overhead per truck o $1,785,000,000 Total Fixed Manufacturing Overhead Expected Selling, General, and Administrative (SG&A) Costs o $3,900 Variable SG&A per truck o $3,030,000,000 Total Fixed SG&A . . Beginning Inventory Balances: o Raw Materials = $75,000,000 o Work-in-Process = $350,000,000 o Finished Goods = $450,000,000 Manufacturing Cost Flows: o Raw Materials Purchased = $6,730,000,000 o Raw Materials introduced into Production = $6,710,000,000 o Direct Labor Used = $394,000,000 o Manufacturing Overhead Allocated to Work-in-Process = $2,202,000,000 o Cost of Goods Manufactured = $9,190,000,000 . Pre-determined Manufacturing Overhead Rate Data (per Direct Labor Hour) Estimated Total Manufacturing Overhead = $2,190,000,000 o Estimated Direct Labor Hours Used = 6,000,000 hours Direct Labor Hours Budgeted for the F-350 Thunderbird product line = 7,800 F-350 Thunderbird Truck Manufacturing Process Direct Labor Hours Budgeted for the F-350 Thunderbird product line under either alternative = 7,800 INCOME STATEMENTS Blue Font = Direct Input Data Black Font = Should be Programmed with Formulae RELEVANT (YES or NO) AUTOMATED PROCESS Per Unit Total Per Unit STATUS QUO Total 300,000 Number of units sold Price/Revenues $ 50,000 $ 15,000,000,000 Cost of Goods Sold Direct Materials Direct Labor Allocated Variable MOH Allocated Fixed MOH Gross Margin 22,000 1,650 1,800 4,617 $ 19,933 6,600,000,000 495,000,000 540,000,000 1,385,000,000 $ 5,980,000,000 Selling, General, & Admin Variable SG&A Fixed SG&A Profit before Taxes 3,900 10,100 $ 5,933 1,170,000,000 3,030,000,000 $ 1,780,000,000 [Input your recommendation for which alternative (Status Quo or Automated Process) here. Include both quantitative and qualitative considerations to support your recommendation] INVENTORY BALANCES Blue Font = Direct Input Data Black Font = Should be Programmed with Formulae AUTOMATED STATUS QUO $75,000,000 Beginning RM Inventory 6,660,000,000 + RM Purchases (6,650,000,000) - RM introduced into Production $85,000,000 = Ending RM Inventory $350,000,000 Beginning WIP Inventory 500,000,000 + Direct Labor 6,650,000,000 + RM introduced into Production 1,931,000,000 + Manufacturing Overhead Applied (9,032,000,000) - Cost of Goods Manufactured $399,000,000 = Ending WIP Inventory $450,000,000 Beginning FG Inventory 9,032,000,000 + Cost of Goods Manufactured (9,020,000,000) - Cost of Goods Sold $462,000,000 = Ending FG Inventory MANUFACTURING OVERHEAD COST ALLOCATED TO F-350 THUNDERBIRD Blue Font = Direct Input Data Black Font = Should be Programmed with Formulae AUTOMATED STATUS QUO $ 1,925,000,000 Total Estimated Manufacturing Overhead 10,000,000 = Year Estimated Overhead Cost-generating Activity (Direct Labor Hours) $ 192.50 = Predetermined Overhead Rate ($ per Direct Labor Hour) 7,800 F-350 Thunderbird Cost Driver (Direct Labor Hours) $ 192.50 * Predetermined Overhead Rate ($ per Direct Labor Hour) $ 1,501,500 = Manufacturing Overhead allocated to F-350 Thunderbird Product Line [Explain why there is a difference between the manufacturing overhead allocated to the F-350 Thunderbird product line under the Automated Process and Status Quo alternatives] [Comment on whether you believe the manufacturing overhead allocation is appropriate under each alternative. Explain your reasoning] Objective: Demonstrate understanding of Generalized Decision-Making Framework and Manufacturing Cost Flows Deliverables: 1) Using the Income Statement" template provided, identify the benefits, costs, and value of each alternative. a. Fill out the Income Statement for the Automated Process alternative. Note that the Status Quo data is already provided. Use the Status Quo alternative Income Statement as a reference for which data to input/calculate. b. Using the outlined cells to the right of each Income Statement line item, identify those data that are relevant to the decision at hand with a "Yes" or "No" c. Write your recommendation to Fergie Ferguson of which alternative (Automated Process or Status Quo) in the cell box underneath the Income Statement. Remember to be specific and to support your recommendation with both quantitative and qualitative justifications. 2) Using the Inventory Cost Flows template provided, calculate the end-of-year Raw Material, Work-in-process, and Finished Goods inventory balances for the Automated Process alternative. Note that the Status Quo alternative data is already filled out and calculated for you as a reference. 3) Using the F-350 Thunderbird MOH template provided, calculate the Manufacturing Overhead allocated to the F-350 Thunderbird truck product line under the Automated Process alternative. Note that the Status Quo Predetermined Overhead Rate and Manufacturing Overhead allocated to the F-350 Thunderbird is filled out and calculated for you as a reference. a. Using the Automated Process Manufacturing Overhead and Direct Labor Hours estimates, calculate the Predetermined Overhead Rate. b. Use your Predetermined Overhead Rate calculation from above to calculate how much Manufacturing Overhead would be allocated to the F-350 Thunderbird product line under the Automated Process alternative. C. In the first cell box underneath the Manufacturing Overhead Cost Allocations, explain why there is a difference between the manufacturing overhead allocated to the F-350 Thunderbird product line under the Automated Process and Status Quo alternatives. d. In the second cell box underneath the Manufacturing Overhead Cost Allocations, comment on whether you believe the manufacturing overhead allocation is appropriate under each alternative. Explain your reasoning. Case Description: You are consulting for the Kentucky Truck Plant Manager, Fergie Ferguson. Fergie is considering switching from her "Status Quo" process that primarily utilizes a relatively balanced amount of labor and automation to a process that relies heavily on advanced robotics and other heavily automated technologies ("Automated Process). Both processes would accommodate the forecasted units sold (see Appendix for that assumption). Fergie has provided you with as the "Status Quo" forecasted Income Statement and Inventory Account Balances (see Template). She has also provided you with data relating to the Automated Process alternative (see Appendix). She has asked for you to help her to determine whether to continue with the Status Quo operations or to switch to the Automated Process alternative. She is primarily interested in maximizing the profitability of her plant. Fergie is also interested in how the Automated Process alternative might change the end-of- year planned Raw Material, Work-in-process, and Finished Goods inventory balances. Fergie's plant manufactures eight (8) different models of F-series truck. Fergie is particularly interested in the costs associated with a specialty high-end truck, called the F-350 Thunderbird. The F-350 Thunderbird model is unique in that it is manufactured using a unique, highly labor- intensive production process. Regardless of whether Fergie opts to switch to the Automated Process, the F-350 Thunderbird will continue to be manufactured using its own unique production process. That is, the F-350 Thunderbird manufacturing process will be unaffected by Fergie's decision whether to switch to the Automated Process. Given this, Fergie is interested in how to account for the manufacturing overhead that would be allocated to the F- 350 Thunderbird truck product line under each alternative. Appendix: Status Quo 300,000 units sold Average Selling Price = $50,000 per truck Expected Cost of Goods Sold o $22,000 Direct Materials per truck o $1,650 Direct Labor per truck o $1,800 Variable Manufacturing Overhead per truck o $1,385,000,000 Total Fixed Manufacturing Overhead Expected Selling, General, and Administrative (SG&A) Costs o $3,900 Variable SG&A per truck o $3,030,000,000 Total Fixed SG&A Beginning Inventory Balances: o Raw Materials = $75,000,000 o Work-in-Process = $350,000,000 o Finished Goods = $450,000,000 Manufacturing Cost Flows: o Raw Materials Purchased = $6,660,000,000 o Raw Materials introduced into Production = $6,650,000,000 Direct Labor Used = $500,000,000 o Manufacturing Overhead Allocated to Work-in-Process = $1,931,000,000 o Cost of Goods Manufactured = $9,032,000,000 Pre-determined Manufacturing Overhead Rate Data (per Direct Labor Hour) o Estimated Total Manufacturing Overhead = $1,925,000,000 o Estimated Direct Labor Hours Used = 10,000,000 hours Automated Manufacturing Process 300,000 units sold Average Selling Price = $50,000 per truck Expected Cost of Goods Sold $22,000 Direct Materials per truck o $1,290 Direct Labor per truck o $1,350 Variable Manufacturing Overhead per truck o $1,785,000,000 Total Fixed Manufacturing Overhead Expected Selling, General, and Administrative (SG&A) Costs o $3,900 Variable SG&A per truck o $3,030,000,000 Total Fixed SG&A . . Beginning Inventory Balances: o Raw Materials = $75,000,000 o Work-in-Process = $350,000,000 o Finished Goods = $450,000,000 Manufacturing Cost Flows: o Raw Materials Purchased = $6,730,000,000 o Raw Materials introduced into Production = $6,710,000,000 o Direct Labor Used = $394,000,000 o Manufacturing Overhead Allocated to Work-in-Process = $2,202,000,000 o Cost of Goods Manufactured = $9,190,000,000 . Pre-determined Manufacturing Overhead Rate Data (per Direct Labor Hour) Estimated Total Manufacturing Overhead = $2,190,000,000 o Estimated Direct Labor Hours Used = 6,000,000 hours Direct Labor Hours Budgeted for the F-350 Thunderbird product line = 7,800 F-350 Thunderbird Truck Manufacturing Process Direct Labor Hours Budgeted for the F-350 Thunderbird product line under either alternative = 7,800 INCOME STATEMENTS Blue Font = Direct Input Data Black Font = Should be Programmed with Formulae RELEVANT (YES or NO) AUTOMATED PROCESS Per Unit Total Per Unit STATUS QUO Total 300,000 Number of units sold Price/Revenues $ 50,000 $ 15,000,000,000 Cost of Goods Sold Direct Materials Direct Labor Allocated Variable MOH Allocated Fixed MOH Gross Margin 22,000 1,650 1,800 4,617 $ 19,933 6,600,000,000 495,000,000 540,000,000 1,385,000,000 $ 5,980,000,000 Selling, General, & Admin Variable SG&A Fixed SG&A Profit before Taxes 3,900 10,100 $ 5,933 1,170,000,000 3,030,000,000 $ 1,780,000,000 [Input your recommendation for which alternative (Status Quo or Automated Process) here. Include both quantitative and qualitative considerations to support your recommendation] INVENTORY BALANCES Blue Font = Direct Input Data Black Font = Should be Programmed with Formulae AUTOMATED STATUS QUO $75,000,000 Beginning RM Inventory 6,660,000,000 + RM Purchases (6,650,000,000) - RM introduced into Production $85,000,000 = Ending RM Inventory $350,000,000 Beginning WIP Inventory 500,000,000 + Direct Labor 6,650,000,000 + RM introduced into Production 1,931,000,000 + Manufacturing Overhead Applied (9,032,000,000) - Cost of Goods Manufactured $399,000,000 = Ending WIP Inventory $450,000,000 Beginning FG Inventory 9,032,000,000 + Cost of Goods Manufactured (9,020,000,000) - Cost of Goods Sold $462,000,000 = Ending FG Inventory MANUFACTURING OVERHEAD COST ALLOCATED TO F-350 THUNDERBIRD Blue Font = Direct Input Data Black Font = Should be Programmed with Formulae AUTOMATED STATUS QUO $ 1,925,000,000 Total Estimated Manufacturing Overhead 10,000,000 = Year Estimated Overhead Cost-generating Activity (Direct Labor Hours) $ 192.50 = Predetermined Overhead Rate ($ per Direct Labor Hour) 7,800 F-350 Thunderbird Cost Driver (Direct Labor Hours) $ 192.50 * Predetermined Overhead Rate ($ per Direct Labor Hour) $ 1,501,500 = Manufacturing Overhead allocated to F-350 Thunderbird Product Line [Explain why there is a difference between the manufacturing overhead allocated to the F-350 Thunderbird product line under the Automated Process and Status Quo alternatives] [Comment on whether you believe the manufacturing overhead allocation is appropriate under each alternative. Explain your reasoning]