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Part A: Automate

Daily Working Hrs Labor cost/hr No. Of wrkrs oil analysed/hr Upfront Cost
10 -54 1 24 Labor/yr
Maint/yr

Part B: Manual

Daily Working Hrs Labor cost/hr No. Of wrkrs oil analysed/hr Upfront Cost
10 -36 3 18 Labor/yr
Maint/yr
1 2 3 4 5 6 7
-89000
-162000 -162000 -162000 -162000 -162000 -162000 -162000
-10500 -10500 -10500 -10500 -10500 -10500 -10500

Total Labor -1620000

Total Maint -105000 Total Cost

1 2 3 4 5
-24000
-324000 -324000 -324000 -324000 -324000
-1500 -1500 -1500 -1500 -1500

Total Labor -1620000


Total Maint -7500 Total Cost
8 9 10 Oil per day Oil analysed per year
5000
-162000 -162000 -162000 240 72000
-10500 -10500 -10500

-1785000

ANSWER Total Oil to be analysed 291825.61308


Total Oil to be analysed per
year 29182.561308 equals total oil analysed divided by useful life period of a

Oil per day Oil analysed per year


180 54000

-1651500
Total Oil analysed

720000

oil analysed divided by useful life period of automation

Total Oil analysed


270,000.00
Part 1 When different cost drivers are used to allocate indirect costsis used for allocation

A B C Spares
D Mfg L 6746 4460 3118 2222
DM 14000 5620 6000 2000
EL 958 576 384 192
Manuf Ovr 8499.012 5618.973 3928.242 2799.408
MH 1483.187 595.3937 635.6516 211.8839
Eng Ovrhd 1360.393 817.9399 545.2933 272.6466
Total 33046.59 17688.31 14611.19 7697.938
G&A 3533.787 1891.472 1562.425 823.1673

Total Cost 36580.38 19579.78 16173.61 8521.106

Part 2 When only direct manuf. labor is used for allocation

A B C Spares
D Mfg L 6746 4460 3118 2222
DM 14000 5620 6000 2000
EL 958 576 384 192
Manuf Ovr 8499.012 5618.973 3928.242 2799.408
MH 1199.51 793.0349 554.4132 395.095
Eng Ovrhd 3142.884 2077.863 1452.64 1035.204
G&A 3541.956 2341.702 1637.091 1166.651

Total Cost 38087.36 21487.57 17074.39 9810.358

Difference in costs -1506.982 -1907.794 -900.7749 -1289.252

Comment: When direct manuf labor is used to allocate every indire


ed for allocation

R&D Total Total


1102 17648 Manuf Ovrhd 22234
2000 29620 MH 3138
3680 5790 Eng Ovrhd 8222
1388.365 22234 G&A 9266
211.8839 3138
5225.727 8222
13607.98 86652
1455.148 9266

15063.12 95918

R&D Total Total


1102 17648 Manuf Ovrhd 22234
2000 29620 MH 3138
3680 5790 Eng Ovrhd 8222
1388.365 22234 G&A 9266
195.9472 3138
513.4091 8222
578.6 9266

9458.321 95918

5604.803

o allocate every indirect cost, it allocates less indirect cost to R&D and more indirect cost to rest of the produ
Driver for allocation

Lbr dollar-mfg
Direct Mat
Lbr dollar-engg
Total input cost

Driver for allocation

Lbr dollar-mfg
Lbr dollar-mfg
Lbr dollar-mfg
Lbr dollar-mfg

st to rest of the products. This is because, R&D involves very less of manufacturing labor. Thus, the results o
or. Thus, the results of indirect cost distribution are a bit skewed. Using this parameter of allocation does not
of allocation does not represent the true indirect cost utilization in every product. First method is far more su
method is far more superior in allocating the indirect costs correctly.

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