Accounting Assignment

Tijuana Bronze Machining

Case questions

1. Use the information in Exhibit 2 to calculate the EXACT product costs PER UNIT for valves, pumps and

flow controllers that are reported in Exhibit 1, Show your calculation. This would include a detailed

presentation of the predetermined overhead rate used in the calculations.

2. No change

3. This is using Mary Ford’s comments on a “more modern view” that uses a material related overhead, as

well as additional overhead allocations. All products should have Per Unit Costs calculated and show all

overhead computations.

4. ABC method –show Per Unit and Total costs for all three products.

5. No Change

6. Prepare table that compares the results for the 3 products. You should show the Standard Cost, Gross

Margin, and Gross Margin percentage-- Per Unit—for each product. Describe which system you favor and

briefly explain your reasoning. You will be doing a more thorough analysis of your recommendations in

Question 8.

7. This question is asking about the potential problem with the flow controllers. We have 10 components and

10 runs per month. What are some potential changes (ABM) that we might consider and what are the

potential savings? Make some changes and assumptions to some factors and show how there is a potential

for savings on this product cost.

8. What recommendations do you have for management regarding all 3 products. Be specific. Support your

recommendations with explicit analysis. You should investigate how the firm is doing overall (using the

sales and cost estimates given and how your recommendations might change the results. Each product

requires discussion of the product (price, market competition, etc) and recommendations for each. This

should be detailed and supported by calculations where appropriate. Your case grade is heavily dependent

on the quality of your analysis and recommendations for this question.

9. NEW QUESTION – After reviewing the recommendations and discussion, TBM decided to investigate the

effects of some changes to the Flow Controllers that could simplify the production process and potentially

reduce the cost of this product line. You have been asked to recalculate the cost of Flow Controllers using

the following information and report back on the potential results. You should calculate the new per unit

cost (only for the Flow Controllers) and give you opinion as to whether you would recommend the

changes.

Engineering decided to redesign the flow controllers and with the help of a couple key suppliers was able to

come up with the following: Flow controllers redesigned to consist of only 4 components costing a total of

$20. We would still produce 4000 units, but the number of production runs would be reduced to 5 per

month—which had a significant impact on the number of material handling transactions (see recalculation

below!!). The potential savings in material handling is significant—reducing MH costs from $200,000 to

$80,000. We would still have 22 shipments. Calculate the potential savings and the effect on the product

cost. Remember to check changes in: 1) Flow controllers will now have 20 transactions (4 components x 5

runs) or 41% of the total transactions (Valves 8%, Pumps 51% and Flow controllers 41%), and 2)Setup

labor—what is the effect if we make these changes. Run Labor will also be reduced to 0.25 hours per unit.

Discuss your analysis and your recommendations.