Report on Proposed Android01 and Min X and Mini Y

Step 1

When it comes to calculating the total cost for producing one unit of Android01, the following steps were taken. First, calculation of fixed costs, variable costs and remaining costs attributable to Android01. Two methods were used in the calculation; the first method allocated costs using Factory Space while the second method allocated costs using labor. 

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The following table summarizes the calculations 

Allocation Using Factory Space ($)Allocation using Labor ($)
Fixed Costs 20,00020,000
Variable Costs 20,00026,667
Other Costs 25,00025,000
TOTAL COSTS 65,00071,667

It can be confidently said that when costs are allocated using Factory Space, the costs are $6,667 lower as compared to when labor is used to allocate costs. 

Step 2

When Android01 is subjected to the more accurate ABC method of allocating costs, it yields a higher cost per unit for Android01, which is $46,600. The method however notes economies of scale and can be significantly reduced if there are more units of Android01 to be produced as mentioned by Homburg (2001). 

Step 3 

The mark-up (cost-plus) method is simple to apply and it is preferable since it makes pricing more consistent and predictable across various goods (Baker, 2013). The method has led to the conclusion that the company will make gross profits of $18,900 per each unit of sold Android01 when the price is $81,900. The cost-plus method is easy to use and it reduces the worry of determining pricing like it can be seen in the previous two steps where pricing has not been done but instead focus has been given to total costs. 

Step 4

When the contribution of the various production levels is done, it is found out that a production output of 300 units provides the highest contribution. This settles the question, “how much should we produce?”

Step 5

From the description, it has been shown that Mini Y has five cost centers out of which two are variable (Component Cost and Labor Cost). When calculating the budget for May which has 200 extra units, it is important to factor in the extra cost for these 200 units. Only the variable costs will change. When the changes in variable costs have been affected, the total budget for the month of May is $54 million. 

Step 6

When allocating joint costs on the basis of sales value, the sales value for Mini Y and Mini X are first expressed as percentages of their total sales value and then the percentage multiplied by the total joint costs. The joint costs for Mini Y and Mini X are thus $1,560,460.65 and $1,439,539.35 respectively. The profit attributed to Mini Y is $31,159,540.00 

In conclusion, after considering various costing methods it can be recommended that the company adopts the cost-plus method. It is more precise and accurate. When it comes to Mini Y, production levels should be maintained at 300 units to ensure that profits are maximized. Due to the nature of Mini Y having variable and fixed costs in it cost mix, it follows that the more the products manufactured, the higher the costs incurred especially due to variable costs. The same effect is offset by economies of scale. According to Kropf and Sauré (2014), only through calculations can the equilibrium production point be produced. 

References

Baker, M. J. (2014). Marketing strategy and management. Palgrave Macmillan.

Homburg, C. (2001). A note on optimal cost driver selection in ABC. Management Accounting Research, 12(2), 197-205.

Kropf, A., & Sauré, P. (2014). Fixed costs per shipment. Journal of International Economics, 92(1), 166-184.

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