You have been asked to look at production options for the Android01 since production methods and allocation of costs have implications for cost per unit. There are two alternative methods of production being considered. Begin by gathering data (using financial information in decision making), then answer various questions to determine the suitability of the project.

Production A

Costs are as follows:

• $4.5 million per year in rent for factory and machinery
• components and labor in the amount of $12 million will produce 300 units per year

Production B

In an alternative production method, the production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and are to be assigned at the rate of 30 percent to Android01 and 70 percent to Processor01.

The variable cost of the production facilities and service divisions is $20 million per year. The square footage of factory space and labor needed for the production of 500 units of Processor01 and 300 units of Android01 are listed below.

Square Feet

Labor

Processor01 (500 units)

70,000

120

Android01 (300 units)

30,000

80

The remaining cost for the production of Android01 is for components, at $25,000 per unit.

Question 1: In Method B, what would be the cost per unit of producing Android01 using factory space as the allocation basis? What would be the cost per unit using labor as the allocation basis?

Before starting on your calculations, review materials on production cost allocation.

Submit your Allocation of Costs Report and Calculations to the drop box below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Please note that narrative in this Project does not mean audio. It rather means a presentation of the results of your analysis using words and the important numbers. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

An alternate method of assigning costs is activity-based costing. The major activity for the production of both Processor01 and Android01 is component assembly. There will be a total of 125,000 assemblies per year for the production of 500 units of Processor01 and 300 units of Android01 at a total cost of $25 million. Each unit of Android01 will require 180 assemblies. The remaining cost for the production of Android01 is for components, at $25,000 per unit.

Review Section 4.1, Activity-Based Costing and Management and Section 4.2, Activity Based-Costing Method

Question 2: What would be the cost per unit of producing Android01 using activity-based costing?

Submit your Activity-Based Costing Report and Calculations to the drop box below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

Next, suppose IPS uses markup pricing for Android01. Fixed costs are $4.5 million, and for a level of production of 300 units, the variable cost per unit is $48,000.

Question 3: What is the price of the Android01 at 30 percent markup over full cost?

Submit your Markup Pricing Report and Calculations to the drop box below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.

When you have submitted your Allocation of Costs Report, Activity-Based Costing Report, and Markup Pricing Report, continues to the next step, where you will assess the profit-maximizing output level, make a production cost budget, and produce a Profit or Loss Report.

The CEO's next question is, "What level of output would be required to maximize our profit on the MiniZ?" You have calculated the variable cost per unit of the MiniZ for different levels of production. From market research, you have a schedule of prices for these levels. The information is summarized in the table below:

Number of Units

Variable Cost per Unit ($)

Sale Price per Unit ($)

200

60,000

70,000

250

54,000

66,000

300

48,000

64,000

350

46,000

59,000

400

45,000

52,000

A recommendation on output could affect everyone in the company, from management to sales, to the floor manager and assembly line workers! You don't want to get this one wrong so you take some extra time to proof your calculations.