1. AMAN ARORA FT164011 ANKITA KALANI FT161017 DEVANKSHI PRAKASHFT161033 GAYATHRI NARAYNANFT164029 VUBHUTHI RAIZADAFT161102 Group No. 24- Sec C1

2. If the company drops this product there will be a loss of $1408100 Profit with respect to 103 is equal to $160000. Profit without 103 is equal to -$1248100. Direct labour698000 Power31000 Material492000 Supplies36000 Repairs10000 Corp insurance34900 Total expense1301900 All value are in $ Total expense1301900 Revenue due to product 1032710000 Total Savings-1408100 Profit producing product 103160000 Profit without producing product 103-1248100

3. Thus, reduction of price provides added profit of $306457.5. StandardActual Direct Labour1.2126 Power0.021 Materials0.7170.68115 Supplies0.0490.04655 Repairs0.0166 Comp Insurance (5% of DL) 0.06063 Variable Cost per unit 2.03853 The effect of reducing the price by computing the per unit value Cost at $4.9Cost at $4.5 Unit variable cost2.03853 Price per unit4.94.5 Units to be sold7500001000000 Discount to be given0.052920.0486 Unit expense2.808552.41287 Total Expense2106412.52412870 Savings due to reducing306457.5 Comparison of for both the cost and unit sold All value are in $

4. Product 101Product 102Product 103 Direct Labour1.21261.18441.393 Power0.0210.04840.061 Materials0.7170.91520.9824 Supplies0.0490.09240.071 Repairs0.01660.0290.0206 Comp Insurance (5% of direct labour)0.060630.059220.06965 Total Expense2.076832.328622.59765 Product 3 is the most profitable product. Product 101Product 102Product 103 Price4.95.155.5 Discount to be given0.108780.055620.0946 Actual Price4.791225.094385.4054 All value are in $

5.  Fixed cost is classified based on the number of units that are sold.  Depreciation cost was allocated based on category of product and the units produced under each category.  Actual costs were lesser than the standard costs.  A depreciation cost of $129000 which was added to total standard cost was crucial for turnaround  The increase in sales contributed to the turnaround.

6. JOHN DEERE CASE

7.  Weakness  Machine hours are not based on units of product so faulty allocation of cost.  System could not depict bidding for individual parts and its respective costing.  Benefits of employee provided was based on machine hours.  The large dispersion raises a question on the validity of standard cost system for determining cost of individual parts.  As the volume of products change on yearly basis budget overhead cost are not reliabe as there are calculated on past records.  Strengths  Less computing effort required.  Due to large volume of products it was satisfactory at aggregate level.  With the increased usage of automated machines designed method of adopting ACTS (actual cycle time standard) rate was a good approach.  System was evolved to take care of period overheads and product overheads.  The strengths of the current costing system is its simplicity of allocations. The allocation of overhead is done on the basis of direct labor and direct machine hours.

8. What are the strengths and weaknesses of the suggested costing system (data on exhibit 10)? Strengths  Tracking of costs is done so that it reduces variations in cost allocations.  PLC costs can be inferred in a such a manner to improve probability.  Drivers for activities can be analyzed for better decision making.  Overhead cost can be allocated based on activities such as machine operations, production order activity, material handling, setup hours and general and administrative overheads. Weakness  Its time consuming.  There are some costs which can’t be traced down on the basis of activity.  There is some modification required in the existing system.

9. Contingency situation arose because of the following:  There was improper allocation of costs.  Overhead allocation was also inappropriate.  The identification of cost drivers was also faulty.

10.  ABC Method :  Total Cost = Direct Labor + Direct Materials + Overhead  Direct Labor = 0.185 * 12.76 = 2.36.  Direct Materials= 6.44  Overhead: Labor Support Overhead = 1.11 * 0.185 * 12.76 = 6.72. Machine Operation Overhead = (8.99+6.71) * 0.031 = 5.15 Machine SetUp Overhead = (33.76 * 4.2 * 2)/80 = 3.54 Production Order Overhead = (114.27 * 2)/80 = 2.86 Materials Handling Overhead = 19.42 * 4 = 0.97 Parts Administration = (487 * 1)/80 = 6.09 General and Administration = (0.091 * 12.76) * (0.187) + 21.23 = 2.14 Total Cost (per 100 parts) = $32.21

11.  Overhead rates that is predicted is on the basis of previous years.  Material Usage Variance is insignificant.  Gross profit statement indicates company’s performance.  By dropping Product 103 would not positively affect the company’s prospects in a market as other companies offerings are varied.  As price changed from $4.90 to $4.50 and no economies of scale applied to Product 101.  The full capacity is not utilized as 750000 units are sold at $4.90 when can sell 1000000 units at $4.50.  3 overhead costs are considered.  Gross profit statement indicates company’s performance.

12.  Company that is considered : Air India.  Inspite of account details showing cut cost company is in loss year by year basis.  It would be better buying planes and not leasing them.  As there is no fineness or clarification on the costs associated, company would struggle in doing dynamic pricing and competitors would business by declaring offers  The fixed costs associated to the airline industry is high. So aircrafts for shorter trips and the trips that are not full loaded would not add to costs.