Regular Diesel Engines Premium Diesel Engines

Engines 1000 500

Sales Price 500 800

Material Cost 150 400

Contribution 350 500

Total contribution 350,000 200,000

Activity-based Costing (ABC)

Week 7 Pear 1. Please reconsider the two alternatives on page 4. The first order for 1,000 engines at cost of 150 per unit and the second order for 500 premium engines at 300 per unit are alternatives. Would you change your decision knowing that the current lack of skilled employees would push the cost of the second order to 400 per unit? What would you recommend? 2. Based on Table 5 would you sell the stock or transform it to low cost engines at a sales price of 200? 3. Based on Table 7 how would you rationalise manufacturing overhead and Selling, General& Administrative expenses? 4. Please use the information in Table 12 and calculate the projects Net Present Value at a discount rate of 10 percent. What would be your recommendation? 5. Can you identify businesses where an extra customer would not materially increase the cost base? Please give 3-4 examples. 6. Please look at the cost classification exercise and work in pairs. How would you match the descriptions to the graphs? Please explain your work!