The purpose of this exercise is to familiarize you with costing in a manufacturing environment. The tool often utilized is the cost indented bill of material or BOM to develop a product cost.

The bill of material is developed by design engineering and is structured to reflect how the product is to be assembled or manufactured.

Material cost may be obtained from a purchase history or price quotations.

Industrial engineering determines the labor standard or time required to make an assembly from time or methods studies. For example, $\mathrm{.}005$ hours to assemble level $9$ parts to make assembly $8$ in the following bill of material. Wage rates may be obtained from collective bargaining agreements or from payroll records. A wage rate of $$15$ per hour multiplied by the assembly hours of $\mathrm{.}005$ yields a labor cost of $7\mathrm{.}5$ cents of assembly labor.

Overhead is often a function of labor or utilizes labor as a driver. For example, an overhead rate may be $130\%$ of labor cost or labor hours worked. The overhead calculation for the previous example would be $7\mathrm{.}5$ cents multiplied by $130\%$ or overhead per assembly of $9\mathrm{.}75$ cents. Other drivers may be used for overhead calculations such as machine hours. Overhead rates are determined during the annual budgeting process.

Parts and assemblies are indented to show which parts are combined to make an assembly.

Level Source Part Number Material Labor Overhead Total

$7$ M A$0$ XX XX XX XX

$8$ M A$1$ XX XX XX XX

$9$ P B$2$ XX

$9$ P B$3$ XX

$8$ M A$2$ XX XX XX XX

$9$ P B$4$ XX

$9$ P B$5$ XX

The $($M$)$ signifies a manufactured part. The $($P$)$ signifies a purchased part. The cost of level $9$ parts are assembled to make level $8$ cost$.$ The level $8$ costs are combined to make level $7.$ Levels $7$ and $8$ are manufactured parts. This is referred to as rolling the cost. You always start at the bottom and develop your cost to level $0.$ Once you reach level $0$ costing for this product is complete.

Please review the previous product structure. If you have any questions do not hesitate to contact me$.$

Working in a cost accounting environment you will probably use costing software that will roll the product cost for you. Your responsibility is to make sure all part cost and labor rates are in the respective cost files. Please note the cost you develop is used to calculate cost of goods sold and to value inventory, accuracy is imperative.

Product costing is a tedious and involved process. This project will afford you at least a rudimentary knowledge if you should be employed as a cost accountant.

Material Cost File

Part Number Unit Cost

A$2\mathrm{.}35$

A$3\mathrm{.}40$

B$2\mathrm{.}20$

B$3\mathrm{.}30$

C$2\mathrm{.}15$

C$3\mathrm{.}25$

Labor rate per hour is $$15\mathrm{.}00.$

Assembly time from industrial engineering is $\mathrm{.}012$ hours per assembly.

Factory overhead rate is $150\%$ of labor cost.

Widget$-$Product Structure

Level Source Quantity Part Number Material Labor Overhead Total

$0$ M $101$

$1$ M $1$ A$1$

$2$ P $1$ A$2$

$2$ P $1$ A$3$

$1$ M $1$ B$1$

$2$ P $1$ B$2$

$2$ P $2$ B$3$

$1$ M $1$ C$1$

$2$ P $1$ C$2$

$2$ P $2$ C$3$

Please cost the Widget above. Use the material cost file for material cost, assembly time from industrial engineering for assembly and the overhead rated determined from the budgeting process. Please pay attention to the quantity column.

Please communicate with members of your group through the Discussion Board, this way I can determine group participation. Submit your final solution in a Word or Excel file and send it to me by e$-$mail and include each group member name. If you have any questions concerning this project let me know. Your solution is due by the end of Week $15.$