Question:Mueller-Lehmkuhl: Question 3 only. Exhibit 9 shows the reported product costs for five representative products.

1. How accurate do you thinkl these numbers are?
2. If you think they are inaccurate, what is your best estimate of the product cost?
3. List all of the items you think do not belong in the cost of the fasteners. You must have a $ amount fo reach item and a grand total.
4. Calculate the correction factor for the overstated amount of overhead per DL$ (= Amount from number 3 above / $1,610,000).
5. Correct the cost of the 5 fasteners using the correction factor (2 above) and the given direct labor dollars per each fastener.

Note: Total budgeted direct labor dollars (including setup) for 1986 were $1.61 million (Exhibit 1). The Direct labor dollar content (including setup) or the five representative products is.

Direct Labor: S-spring $1.32, Ring $1.43, Prong(B) $0.14, Prong(SS) $0.27, Tack $0.66.

These numbers include direct labor dollars in the finishing department.

Exhibit 9 and Exhibit 1 images attached.

Exhibit 1 Budgeted Income, 1986 ($000) Sales $103,000 Cost of Goods Materials (including material overhead) $31,000 Direct labor (including setup labor) 1,610 Machine overhead 4.500 General overhead Factory support $3,020 Factory supplies 470 Technical administration 6.500 Support departments 6,500 Machining department 13,350 Tooling department 3.050 $32.890 Total $70.000 Sales, General and Administration Research and development $5,810 Administration 2,760 Marketing 7,930 Shipping 3.170 Commission 3.830 $23.500 Net income $9,500Exhibit 9 Product Cost Structures of Representative Products ($ per 1,000 units) S-Spring Ring Prong (Brass) Prong (SS) Tack Button Average selling price $46.75 $39.83 $15.28 $20 32 $38.40 Material Raw material $ 9.70 $8.88 $6.04 $5.74 Material overhead $11.88 0.54 0.50 0.34 0.32 10.24 0.67 9.38 6.38 6 06 12 55 Stamping Setup 0.12 0.25 0.01 0.03 0.03 Labor 0.68 0.48 0.04 0.21 0.25 Machine overhead 1.31 1.27 0.17 1.13 1.11 General overhead 19.91 14.05 1.17 6.15 7.32 22.02 16.05 1.39 7.52 8.71 Assembly Setup 0.14 0.05 0.01 Labor 0.10 0.24 1 1 1 1 0.18 Machine overhead 0.25 0.45 0.00 0.00 0.26 General overhead 1.45 3.49 0.00 0.00 2.62 1.94 4.23 0.00 0.00 3.07 Finishing 5.66 8.28 1.88 0.56 3 84 Total $39.86 $37.94 $9.65 $14.14 $28.17 Total direct labor $1.32 $1.43 $0. 14 $0.27 $0.66 costs" a. Includes setup labor in all departments and the direct labor in the finishing department