HURON AUTO

Amount Hours
Casting/Stamping 54604 2528
Grinding 38520 2140
Machining 191876 7675
Custom Work 81664 3712
Assembly 291784 15357
Total 658448 31412 20.96 Hourly Rate for DL
Overhead 1099323
Total Labor + Overhead 1757771

Hourly Rate DL +OH 55.96

Proposal 1 Cost Per Hr OH Rate Total

Casting/Stamping 21.60 31.37 52.97
Grinding 18.00 30.14 48.14
Machining 25.00 62.52 87.52
Custom Work 22.00 40.48 62.48
Assembly 19.00 21.19 40.19

Proposal 2 Cost Per Hr OH Rate Total

Casting/Stamping 21.60 31.52 53.12
Grinding 18.00 28.75 46.75
Machining 25.00 61.5 86.50
Custom Work 22.00 41.06 63.06
Assembly 19.00 20.14 39.14

Cost for 100 CS-29 Proposal 1 Proposal 2

Hrs Total Cost Total Cost
Casting/Stamping 21 1112.36 1115.51
Grinding 12 577.68 561.00
Machining 58 5076.17 5017.01
Custom Work 0 0.00 0.00
Assembly 35 1406.65 1369.90
Total 126.00 8172.86 8063.42
Existing Method 7050.78

Cost for spare parts Proposal 1 Proposal 2

Hrs Total Cost Total Cost
Casting/Stamping 304 16102.78 16148.38
Grinding 270 12997.80 12622.50
Machining 1115 97584.95 96447.65
Custom Work 0 0.00 0.00
Assembly 0 0.00 0.00
Total 1689.00 126685.53 125218.53
Existing Method 94514.05

Cost for work for other divisions Proposal 1 Proposal 2

Hrs Total Cost Total Cost
Casting/Stamping 674 35701.57 35802.67
Grinding 540 25995.60 25245.00
Machining 2158 188868.44 186667.28
Custom Work 0 0.00 0.00
Assembly 0 0.00 0.00
Total 3372.00 250565.61 247714.95
Existing Method 188692.34

Purchase of Machine
a. Plant is single cost centre
Reduction in custom work labor cost 24499
Overall plant labor after reduction 633949

Impact on Overhead
Increase due to new Depreciation 6667
Decrease due to reduction in Labor Cost 4508
(0.1x40.48x3712hrsx0.3)
Net Increase 2159
New Total Overhead 1101482
Total of Labor and Overhead 1735431

Existing Labor Hours 31412

Less: reduction in custom work department 1114
New Total Labor Hours 30298

New Plant wide rate 57.28

Custom work costs prior to new machine 207718

Custom work cost after new machine 148831
(57.28 x (3712-1114))

b. Each Department is cost centre

Current Overhead 150262
Net Increase 2159
New Total OH for custom work 152421

New Total Hours 2598

New hourly OH rate 58.66
Labor Rate 22.00
Total of Labor plus Overhead 80.66
Custom work costs prior to new machine 231926
Custom work cost after new machine 209585

Profitability of 100 CS-29s Current Proposed

Revenues 11300 11300
DM 4200 4200
DL + Overhead 7051 8173
Profit 49 -1073

Profitability on Differential Basis (Assuming Overheads are fixed)

Current Proposed
Revenues 11300 11300
DM 4200 4200
DL 2641 2785
Profit 4459 4315

CS-29 CS-30
Revenues 11300 11300
DM 4200 8000
DL + Overheads 8173 3867
Profit -1073 -567

Profitability on Differential Basis (Assuming Overheads are fixed)

CS-29 CS-30
Revenues 11300 11300
DM 4200 8000
DL 2785 1475
Profit 4315 1825