The production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and will be assigned at the rate of 30 percent to Android01 and 70 percent to Processor01.
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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. Two alternative methods of
production are being considered. Begin by gathering data (using
financial information in decision making), then determine the
suitability of the project.
The production of Android01 will share some production
facilities and service divisions with Processor01. Fixed costs are
$5 million per year, and will 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 $25 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.
Processor01 (500 units)
Android01 (300 units)
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
Before starting on your calculations, review materials
on production cost allocation.
Submit your Allocation of Costs Report and Calculations to the
dropbox 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 activities for the production of both
Processor01 and Android01 are fabricator setup and component
assembly. There are 500 units of Processor01 and 300 units of
Android01 produced every year. There will be a total of 25,000
setups per year for at a total cost of $10 million. Each unit of
Android01 will require 40 setups. There will be a total of
125,000 assemblies per year at a total cost of $15 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.
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