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Exercise 1
P1-44B ERP cost-benefit analysis
As CEO of Riverside Marine, Rachel Moore knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When Gerbig Consulting proposes that Riverside Marine invest in an ERP system, she forms a team to evaluate the proposal: the plant engineer, the plant foreman, the systems specialist, the human resources director, the marketing director, and the management accountant.
A month later, management accountant Miles Cobalt reports that the team and Gerbig estimate that if Riverside Marine implements the ERP system, it will incur the following costs:
a - $390,000 in software costs
b - $85,000 to customize the ERP software and load Riverside Marine’s data into the new ERP system
c - $112,000 for employee training
The team estimates that the ERP system should provide several benefits:
a - More efficient order processing should lead to savings of $185,000.
b - Streamlining the manufacturing process so that it maps into the ERP system will create savings of $255,000.
c - Integrating purchasing, production, marketing, and distribution into a single system will allow Riverside Marine to reduce inventories, saving $215,000.
d - Higher customer satisfaction should increase sales, which, in turn, should increase profits by $150,000.
Requirements
1- If the ERP installation succeeds, what is the dollar amount of the benefits?
2- Should Riverside Marine install the ERP system? Why or why not? Show your calculations.
3- Why did Moore create a team to evaluate Gerbig’s proposal? Consider each piece of cost-benefit information that management accountant Cobalt reported. Which person on the team is most likely to have contributed each item? (Hint: Which team member is likely to have the most information about each cost or benefit?)
Exercise 2
E2-25A Classify and calculate a manufacturer’s costs.
An airline manufacturer incurred the following costs last month (in thousands of dollars):
a. Airplane seats - $240
b. Production supervisors’ salaries -$100
c. Depreciation on forklifts in factory $40
d. Machine Lubricant - $35
e. Factory Janitors’ wages -$15
f. Assembly workers’ wages - $620
g. Property tax on corporate marketing office - $30
h. Plant utilities - $120
i. Cost of warranty repairs – $260
j. Machine operator’ health insurance – $10
k. Depreciation on administrative offices – $60
l. Cost of designing new plant layout - $170
m. Jet engines’ - $1400
Requirements
1. Assuming the cost object is an airplane, classify each cost as one of the following: direct material (DM), direct labor (DL), indirect labor (IL), indirect materials (IM), other manufacturing overhead (other MOH), or period cost. (Hint: Set up a column for each type of cost.) What is the total for each type of cost?
2. Calculate total manufacturing overhead costs.
3. Calculate total product costs.
4. Calculate total prime costs.
5. Calculate total conversion costs.
6. Calculate total period costs.
Exercise 3
E2-28A - Compute direct materials used and Cost of Goods Manufactured
Justine Industries is calculating its Cost of Goods Manufactured at year-end. The company’s accounting records show the following: The Raw Materials Inventory account had a beginning balance of $17,000 and an ending balance of $12,000. During the year, the company purchased $55,000 of direct materials. Direct labor for the year totaled $121,000, while manufacturing overhead amounted to $151,000. The Work Process Inventory account had a beginning balance of $22,000 and an ending balance of $21,000. Assume that Raw Materials Inventory contains only direct materials. Compute the Cost of Goods Manufactured for the year. (Hint: The first step is to calculate the direct materials used during the year.)
Exercise 4
E2-36B - Classify costs along the value chain for a manufacturer
Suppose the smartphone manufacturer Skylar Technologies provides the following information for its costs last month (in millions):
1 - Delivery expense to customers via UPS – $10
2 – Salaries of sales people – $6
3 – Chipset (the set of chips used in a phone) - $60
4 – Exterior case for phone - $4
5 – Assembly-line workers’ wages – $12
6 – Technical customer support hotline – $5
7 – Depreciation on plant and equipment – $65
8 – Rearrange production process to accommodate new robot - $1
9 – 1-800 (toll-free) line for customer orders - $3
10 – Salaries of scientists who developed new model - $11
Requirements
1. Classify each of these costs according to its place in the value chain (R&D, Design, Production, Marketing, Distribution, or Customer Service).
2. Within the production category, break the costs down further into three subcategories: Direct Materials, Direct Labor, and Manufacturing Overhead.
3. Compute the total costs for each value chain category.
4. How much are the total product costs?
5. How much are the total prime costs?
6. How much are the total conversion costs?