Step 1: Allocate Costs

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. There are two alternative methods of production being considered. Begin by gathering data (using financial information in decision making), then answer various questions to determine the suitability of the project.

Production A

Costs are as follows:$4.5 million per year in rent for factory and machinerycomponents and labor in the amount of $12 million will produce 300 units per year

Production B

In an alternative production method, the production of Android01 will share some production facilities and service divisions with Processor01. Fixed costs are $5 million per year, and are to 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 $20 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.

Sq. Ft.Labor

Processor01 (500 units)70,000120

Android01 (300 units)30,00080

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 allocation basis?

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.

Step 2: Activity-Based CostingAn alternate method of assigning costs is activity-based costing. The major activity for the production of both Processor01 and Android01 is component assembly. There will be a total of 125,000 assemblies per year for the production of 500 units of Processor01 and 300 units of Android01 at a total cost of $25 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.Question 2: What would be the cost per unit of producing Android01 using activity-based costing?Submit your Activity-Based Costing Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.Step 2: Activity-Based CostingAn alternate method of assigning costs is activity-based costing. The major activity for the production of both Processor01 and Android01 is component assembly. There will be a total of 125,000 assemblies per year for the production of 500 units of Processor01 and 300 units of Android01 at a total cost of $25 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.Review:Section 4.1, Activity-Based Costing and Management and Section 4.2, Activity Based-Costing MethodQuestion 2: What would be the cost per unit of producing Android01 using activity-based costing?Submit your Activity-Based Costing Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company.Step 3: Markup PricingSuppose IPS uses markup pricing for Android01. Fixed costs are $4.5 million, and for a level of production of 300 units, the variable cost-per-unit is $48,000.Question 3: What is the price of the Android01 at 30 percent markup over full cost?Submit your Markup Pricing Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of companyStep 4: Choose the Profit-Maximizing Output LevelThe CEO’s next question is, “What level of output would be required to maximize our profit on the Android01?” You have calculated the variable cost-per-unit for different levels of production. From market research, you have a schedule of prices for these levels. The information is summarized in the table below:Number of UnitsVariable Cost-per-Unit ($)Sale Price-per-Unit ($)20060,00070,00025054,00066,00030048,00064,00035046,00059,00040045,00052,000Step 5: BudgetYour CEO has asked you to prepare a production cost budget for the MiniY for May 20X8. The actual costs in April 20X8 were:MiniY: Production Cost BudgetApril 20X8Production–Units of MiniY3,000Components cost (variable)24,000,000Labor cost (variable)13,500,000Rent (fixed) 6,000,000Depreciation (fixed)6,000,000Other (fixed)2,000,000Total$51,500,000For the month of May, the number of MiniY produced will increase to 3,200, reflecting an anticipated sales increase related to a new marketing campaign.Question 5: Using the above information, prepare a budget for May 20X8 stating the total cost. Use a spreadsheet to display your data and calculations.Before starting your calculations, review materials on integrating accounting and financial information.Submit your Production Cost Budget Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of company. Before you submit your assignment, review the competencies below, which your instructor will use to evaluate your work. A good practice would be to use each competency as a self-check to confirm you have incorporated all of them in your work.3.1 Identify numerical or mathematical information that is relevant in a problem or situation.3.2 Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.3.3 Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.3.4 Employ software applications and analytic tools to analyze, visualize, and present data to inform decision-making.10.5 Develop operating forecasts and budgets and apply managerial accounting techniques to support strategic decisions.Step 6: Profit or LossIPS operates a factory which produces the MiniY and the MiniX. During September 20X8, the factory produced 3200 units of MiniY and 3000 units of MiniX. The joint cost related to the operation was $3,000,000. MiniX sells for $27,100 per unit and MiniY sells for $25,000 per unit. Allocate the joint costs using the relative sales values of MiniY and MiniX.Question 6: With the costs that you calculate, what is the profit or loss associated with MiniY? NOTE: Assume that the variable and fixed costs mentioned in Step 5 are also applicable to Step 6 when calculating the profit or loss for MiniYBefore starting your calculations, review the materials on integrating accounting and financial information.Submit your Profit or Loss Report and Calculations to the dropbox below. Submit a spreadsheet showing your calculations in Excel and provide a narrative analysis in Word. Your narrative analysis should summarize the results of your analysis and make recommendations for the benefit of the company.Step 7: Managerial Accounting Report to ManagementAlthough you get frustrated at times with your CEO’s constant requests for information, it is your job as a CFO to analyze that data for her. You both understand that data provides a basis for sound operational decision-making (integrating accounting and financial information). The CEO’s final request is for an analysis and summary of financial projections for the Mini and Android lines, based on the information gathered in the previous steps. You collect your previous reports and spreadsheets and pore over them, looking for meaningful trends and patterns.