Destin Brass produces three products used for water purification systems: valves, pumps and flow controllers. They are seeing high competition in the pumps market while competitors are reducing the prices on pumps. Because they do not have any design advantages to their product, they feel they need to follow the market and lower their prices as well. A meeting was held to discuss the declining profits and a proposal to change their overhead allocation method was proposed.
1.)Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing costs to estimate product costs for values, pumps and flow controllers.
Based on the information in the case, the cost of valves is $39, the cost of pumps is $81 and the costs of flow controllers is $147. The breakdown of the analysis is below.
TotalValuesPumps Flow Controllers
Material Cost per Unit162022
Units per Month7500125004000
Material Cost per Month 12000025000088000
Production runs per month1510
Setup Labor Hours per Production Run8812
Run Labor Hours per Unit0.250.50.4
Setup Labor Hours per Month840120
Run Labor Hours per Month187562501600
Labor Costs per Hour16
Setup Cost per Month 1286401920
Run Labor Cost per Month 30000500000256000
Machine Usage Costs
Machine Usage Hours per Unit0.50.50.2
Machine Usage Hours per Month1080037506250800
Machine Usage Cost per Month259375015625020000
Packing & Shipping Cost60000120001800018000
Total Costs per Month2931161014887586685
Standard Unit Costs 39.181.2146.7
2.)Compare the estimated costs you calculate to existing standard unit costs (exhibit 3) and the revised unit costs...