Refer to Problem 14.43. In 20x3, Jack Carter, president of Kartel, requested that environmental costs be assigned to the two major products produced by the company. He felt that knowledge of the environmental product costs would help guide the design decisions that would be necessary to improve environmental performance. The products represent two different models of a cellular phone (Model XA2 and Model KZ3). The models use different processes and materials. To assign the costs, the following data were gathered for 20x3:
During 20x3, Kartel’s division produced 200,000 units of Model XA2 and 300,000 units of Model KZ3.
Required:
- 1. Using the activity data, calculate the environmental cost per unit for each model. How will this information be useful?
- 2. Upon examining the cost data produced in Requirement 1, an environmental engineer made the following suggestions: (1) substitute a new plastic for a material that appeared to be the source of much of the hazardous waste (the new material actually cost less than the contaminating material it would replace), and (2) redesign the processes to reduce the amount of air contaminants produced.
As a result of the first suggestion, by 20x5, the amount of hazardous waste produced had diminished to 50 tons, 10 tons for Model XA2 and 40 tons for Model KZ3. The second suggestion reduced the contaminants released by 50 percent by 20x5 (15 tons for Model XA2 and 110 tons for Model KZ3). The need for pollution equipment also diminished, and the hours required for operating this equipment for Model XA2 and Model KZ3 were reduced to 60,000 and 200,000, respectively. Calculate the unit cost reductions for the two models associated with the actions and outcomes described (assume the same production as in 20x3). Do you think the efforts to reduce the environmental cost per unit were economically justified? Explain.
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Cornerstones of Cost Management (Cornerstones Series)
- Kagle design engineers are in the process of developing a new green product, one that will significantly reduce impact on the environment and yet still provide the desired customer functionality. Currently, two designs are being considered. The manager of Kagle has told the engineers that the cost for the new product cannot exceed 550 per unit (target cost). In the past, the Cost Accounting Department has given estimated costs using a unit-based system. At the request of the Engineering Department, Cost Accounting is providing both unit-and activity-based accounting information (made possible by a recent pilot study producing the activity-based data). Unit-based system: Variable conversion activity rate: 100 per direct labor hour Material usage rate: 20 per part ABC system: Labor usage: 15 per direct labor hour Material usage (direct materials): 20 per part Machining: 75 per machine hour Purchasing activity: 150 per purchase order Setup activity: 3,000 per setup hour Warranty activity: 500 per returned unit (usually requires extensive rework) Customer repair cost: 25 per repair hour (average) Required: 1. Select the lower-cost design using unit-based costing. Are logistical and post-purchase activities considered in this analysis? 2. Select the lower-cost design using ABC analysis. Explain why the analysis differs from the unit-based analysis. 3. What if the post-purchase cost was an environmental contaminant and amounted to 10 per unit for Design A and 40 per unit for Design B? Assume that the environmental cost is borne by society. Now which is the better design?arrow_forwardMozaic Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system (CAM) or a labor-intensive production system (LIP). The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: www CAM System LIP System Direct Material $5.00 $5.60 Direct Labor (DLH) 0.5 DLH x $12 $6.00 0.8 DLH x $9 $7.20 Variable Overhead 0.5 DLH x $6 $3.00 0.8 DLH x $6 $4.80 Fixed Overhead* $2,440,000 $1,320,000 * These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company's marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: 1. Describe the circumstances under which the firm should employ each of the two manufacturing methods. 2. Identify some business…arrow_forwardAs you learned in the previous chapters, Current Designs has two main product lines-composite kayaks, which are handmade and very labor-intensive, and rotomolded kayaks, which require less labor but employ more expensive equipment. Current Designs' controller, Diane Buswell, is now evaluating several different methods of assigning overhead to these products. It is important to ensure that costs are appropriately assigned to the company's products. At the same time, the system that is used must not be so complex that its costs are greater than its benefits. Diane has decided to use the following activities and costs to evaluate the methods of assigning overhead. Activities Designing new models Creating and testing prototypes Creating molds for kayaks Cost $124,000 144,000 182,000 Operating oven for the rotomolded kayaks 41,000 Operating the vacuum line for the composite kayaks 28,000 Supervising production employees 168,000 Curing time (the time that is needed for the chemical processes…arrow_forward
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- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning