Exhibit: Selected product grades with production and financial data
| Product (Grade) |
|
Caliper |
|
Coated/Uncoated |
|
Slit |
|
Average Reels per Batch |
|
Material Cost per Reel |
|
Selling Price per Reel |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| A |
|
0.013 |
|
Coated |
|
Yes |
|
50 |
|
$4,800 |
|
$12,600 |
| B |
|
0.014 |
|
Uncoated |
|
No |
|
2 |
|
$5,200 |
|
$13,500 |
| C |
|
0.015 |
|
Coated |
|
Yes |
|
35 |
|
$5,600 |
|
$14,200 |
| D |
|
0.02 |
|
Coated |
|
No |
|
175 |
|
$7,400 |
|
$19,500 |
Exhibit: Overhead Structure
| |
|
|
|
Total |
|
Grade Change |
|
Slitting |
|
Net |
| Depreciation |
|
$800,000 |
|
$8,000 |
|
$70,000 |
|
$722,000 |
| Labor |
|
|
|
$300,000 |
|
$3,000 |
|
$25,000 |
|
$272,000 |
| Energy |
|
|
|
$500,000 |
|
$5,000 |
|
$80,000 |
|
$415,000 |
| Other |
|
|
|
$198,470 |
|
$1,000 |
|
$20,000 |
|
$177,470 |
| Unrecoverable Clay and Chemicals from Grade Changeovers |
|
|
|
$30,000 |
|
$30,000 |
|
$0 |
|
$0 |
| Total |
|
|
|
$1,828,470 |
|
$47,000 |
|
$195,000 |
|
$1,586,470 |
Calculate the volume-based (traditional) cost per reel for grades A-D identified in Exhibit.
What is the cost for Forest Hill to conduct a grade change?
What is the cost for Forest Hill to slit a reel of paperboard? As shown in Exhibit, only products A and C are routinely slit. For purposes of your analysis, assume the slitting equipment must be set up and adjusted between each reel slit.
Calculate the new volume-based overhead rate after removing grade change and slitting costs.
Determine the activity-based costs for grades A-D
Prepare a table that illustrates the percentage change in costs between the volume-based system and the strategic activity-based system.