- Using data in the exhibits, determine the cost of a 100-unit batch of model CS-29, a month’s spare parts, and a month’s work done for other divisions under the present method, Bond’s first proposal, and his revised proposal.
- Are the cost differences among the methods significant? What causes these differences?
- Assume that producing a batch of 100 model CS-29 injectors requires 126 hours, distributed by department as shown in Exhibit 3, and $4,200 worth of materials. Huron sells these carburetors for $113 each. Should the CS- 29 price be increased? Should the CS-29 be dropped from the product line? (Answer using both the present and the first proposed costing methods.)
- Assume that Huron also offers a model CS-30 that is identical to a CS-29 in all important aspects, including price, but is preferred for some applications because of certain design features. Because of the CS-30’s relatively low sales volume, Huron buys certain major components for the CS-30 rather than making them in-house. The total cost of materials and purchased parts for 100 units of model CS-30 is $8,000; the labor required per 100 units is 12, 7, 17, and 35 hours respectively, in the casting/stamping, grinding, machining, and assembly de- partments. If a customer ordered 100 units and said that either model CS-29 or CS-30 would be acceptable, which model should Huron ship? Why? (Answer using only the first proposed costing method and the assump- tions regarding CS-29 from Question 3.)
- What benefits, if any, do you see to Huron if either proposed costing method is adopted? Consider this question from the standpoint of (a) product pricing, (b) cost control, (c) inventory valuation, (d) charges to outside depart- ments, (e) measuring departmental performance, and (f) diagnostic uses of cost data. What do you think Huron should do regarding their costing procedures?