MTM Manufacturing Produces Two Types of Pre-Fabricated Exterior Walls: Deluxe

question 95

Essay

MTM Manufacturing produces two types of pre-fabricated exterior walls: deluxe and standard.The assignment basis for overhead costs has been direct labor hours.For 2011,MTM compiled the following data for the two products:

Last year,MTM purchased an expensive robotics system to allow for more complex products in the deluxe line.The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign.She obtained the following ABC information for 2011:

a. Using the current cost system,what is the estimated:
1. total cost of manufacturing one unit for each type of wall; and
2. profit per unit for each type of wall?
b. Using the current cost system,estimated manufacturing overhead costs per unit are less for the deluxe wall ($1,800 per unit)than the standard wall ($2,400 per unit).What is a likely explanation for this?
c. Review the machine-related costs above.What is a likely explanation for machine-related costs being so high? What might explain why total machining hours for the deluxe walls (300,000 hours)are the same as for the standard walls (300,000 hours)?
d. Using the activity-based costing data presented above,
1. compute the cost driver rate for each overhead activity.
2. compute the revised manufacturing overhead cost per unit for the deluxe wall.
3. compute the revised total cost to manufacture one unit of the deluxe wall.
e. Is the deluxe wall as profitable as the original data estimated? Why or why not?
f. What considerations need to be examined when determining a sales mix strategy?

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Definitions:

Atkinson-Shiffrin Model

A model of memory proposed by Richard Atkinson and Richard Shiffrin that describes three stages of memory: sensory memory, short-term memory, and long-term memory.

Memory Stages

The process of information transfer and transformation in memory, typically including encoding, storage, and retrieval stages.

Long-Term Storage

The phase of memory where information is held indefinitely and can be recalled long after it was initially learned.

Short-Term Memory

A type of temporary memory storage that holds a small amount of information for a short period of time.