Table 1: Historical Records of Direct and Indirect Cost Analysis for Quik-Sterz Model Standard Premium Quik-Sterz Direct Cost (DC) Evaluation Direct Labor, Direct Material, Direct Labor, $/unit $/unit Hours/unit 5.00 2.50 0.25 10.00 3.75 0.50 Total Direct Labor Hours 187,500 125,000 Model Standard Premium Quik-Sterz Indirect Cost (IDC) Evaluation Direct Labor, Fraction IDC Allocated IDC, Hours/unit Allocated $ 0.25 1/3 1.67 million 0.50 1/3 3.33 million Sales, Units/Year 750,000 250,000 *Average direct labor rate is $ per hour Table 2: Quik-Sterz Activities, Cost Drivers, and Volume Levels for ABC-Based Indirect Cost Allocation Activity Cost Driver Volume/year Actual Cost, $/year Quality Inspections 20,000 inspections 800,000 Purchasing Purchase 40,000 orders 1,200,000 orders Scheduling Change orders 1,000 orders 800,000 Production Setup Setups 5,000 Setups 1,000,000 Machine Operations Machine hours 10,000 hours 1,200,000 Cost Driver Inspections Purchase orders Number of change orders Production setups Machine hours Volume Level for the year Standard 8,000 30,000 400 1,500 7,000 Premium 12,000 10,000 600 3,500 3,000 a. Verify Arnie's cost and price estimates by using traditional indirect (10 Marks) cost allocation b. Estimate the indirect cost allocation and total cost for each model by (10 Marks) using ABC method C. If the prices and number of units sold are the same next year (750,000 (10 Marks) standard and 250,000 premium), and all other costs remain constant, compare the profit from Quik-Sterz under the ABC method with the profit using the traditional indirect cost allocation method. d. Determine what prices should Medical Dynamics charge next year (10 Marks) based on the ABC method and a 10% markup over cost and the total profit from Quik-Sterz predicted to be if sales hold steady. Table 1: Historical Records of Direct and Indirect Cost Analysis for Quik-Sterz Model Standard Premium Quik-Sterz Direct Cost (DC) Evaluation Direct Labor, Direct Material, Direct Labor, $/unit $/unit Hours/unit 5.00 2.50 0.25 10.00 3.75 0.50 Total Direct Labor Hours 187,500 125,000 Model Standard Premium Quik-Sterz Indirect Cost (IDC) Evaluation Direct Labor, Fraction IDC Allocated IDC, Hours/unit Allocated $ 0.25 1/3 1.67 million 0.50 1/3 3.33 million Sales, Units/Year 750,000 250,000 *Average direct labor rate is $ per hour Table 2: Quik-Sterz Activities, Cost Drivers, and Volume Levels for ABC-Based Indirect Cost Allocation Activity Cost Driver Volume/year Actual Cost, $/year Quality Inspections 20,000 inspections 800,000 Purchasing Purchase 40,000 orders 1,200,000 orders Scheduling Change orders 1,000 orders 800,000 Production Setup Setups 5,000 Setups 1,000,000 Machine Operations Machine hours 10,000 hours 1,200,000 Cost Driver Inspections Purchase orders Number of change orders Production setups Machine hours Volume Level for the year Standard 8,000 30,000 400 1,500 7,000 Premium 12,000 10,000 600 3,500 3,000 a. Verify Arnie's cost and price estimates by using traditional indirect (10 Marks) cost allocation b. Estimate the indirect cost allocation and total cost for each model by (10 Marks) using ABC method C. If the prices and number of units sold are the same next year (750,000 (10 Marks) standard and 250,000 premium), and all other costs remain constant, compare the profit from Quik-Sterz under the ABC method with the profit using the traditional indirect cost allocation method. d. Determine what prices should Medical Dynamics charge next year (10 Marks) based on the ABC method and a 10% markup over cost and the total profit from Quik-Sterz predicted to be if sales hold steady
