Destin Company produces water control valves, made of brass, that it sells primarily to builders for use in commercial realestate construction. These valves must meet rigid specifications (i.e., the quality tolerance is small). Valves that, uponinspection, get rejected are returned to the Casting Department; that is, they are returned to stage 1 of the four-stagemanufacturing process. Rejected items are melted and then recast. As such, no new materials in Casting are required torework these items. However, new materials must be added in the Finishing Department for all reworked valves. As the costaccountant for the company, you have prepared the following cost data regarding the production of a typical valve:CostDirect materialsDirect laborCasting$ 220Finishing$ 15Inspection$ 0Packing$ 10Total$ 2451251352525310Variable manufacturing overheadAllocated fixed overhead1501652020355859512090390$ 5802$$ 410$ 165$ 145$ 1,300The company, spurred by intense price pressures from foreign manufacturers, recently initiated a number of qualityprograms. As a result, the rejection rate for valves has decreased from 7.3% to 5.3% of annual output (equal in total to 15,000units). The reduction in reject rates has enabled the company to reduce its inventory holdings from $560,000 to $330,00.Destin estimates that the annual financing cost associated with inventory holdings is 10%.Required:1. What are the estimated manufacturing cost savings per year associated with the reduction in rework costs?2. What are the annual financing cost savings associated with the reduction in inventory holdings?3. Provide a dollar estimate of the total annual cost savings associated with the recently enacted quality improvements.(Do not round intermediate calculations.)1. Estimated annual manufacturing cost savings2. Annual financing cost savings3. Total estimated savings

Cost analysis is done for every minor and major decision as any change in the element of cost…

Destin Company produces water control valves, made of brass, that it sells primarily to builders for use in commercial real estate construction. These valves must meet rigid specifications (i.e., the quality tolerance is small). Valves that, upon inspection, get rejected are returned to the Casting Department; that is, they are returned to stage 1 of the four-stage manufacturing process. Rejected items are melted and then recast. As such, no new materials in Casting are required to rework these items. However, new materials must be added in the Finishing Department for all reworked valves. As the cos accountant for the company, you have prepared the following cost data regarding the production of a typical valve: Cost Direct materials Casting $ 220 Finishing $ 15 Inspection $ 0 Packing $ 10 Total $ 245 Direct labor 125 135 25 25 310 Variable manufacturing overhead Allocated fixed overhead 150 165 20 20 355 85 95 120 90 390 $ 580 $ 410 $ 165 $ 145 $ 1,300 The company, spurred by intense price pressures from foreign manufacturers, recently initiated a number of quality programs. As a result, the rejection rate for valves has decreased from 7.3% to 5.3% of annual output (equal in total to 15,00 units). The reduction in reject rates has enabled the company to reduce its inventory holdings from $560,000 to $330,000. Destin estimates that the annual financing cost associated with inventory holdings is 10%. Required: 1. What are the estimated manufacturing cost savings per year associated with the reduction in rework costs? 2. What are the annual financing cost savings associated with the reduction in inventory holdings? 3. Provide a dollar estimate of the total annual cost savings associated with the recently enacted quality improvements. (Do not round intermediate calculations.) 1. Estimated annual manufacturing cost savings 2. Annual financing cost savings 3. Total estimated savings

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter1: Introduction To Cost Management

Section: Chapter Questions

Problem 2E: Hepworth Communications produces cell phones. One of the four major electronic components is...