Required I (Managerial/Cost Accounting): Your job
Required for Part I (Managerial/Cost...
Required for Part I (Managerial/Cost Accounting):Submitted: 2 years ago.Category: Single Problem
Your job is to provide management with multiple (three or more) cost calculations that
could be used to set product price for the current year (2005) and to explain/justify the
amounts you calculate. You are to calculate cost, not to suggest the sells price. To keep
matters simple, you may assume that all estimated amounts are accurate (i.e., you do not
need to include any extra amount to cover unexpected additional costs). 2 page maximum.
Off Road, Inc. (ORI) produces and sells a single product, a Dune Buggy. A single
manufacturing plant in Allentown, Pennsylvania, dedicated to manufacturing Dune
Buggies, is expected to run at 75% of capacity* during 2005 and produce 10 Dune Buggies
per day, which equals projected average daily demand. Production of the 3650 Dune
Buggies (10 Dune Buggies per day X 365 days per year) is expected to result in the
following costs for the company for the year ended December 31, 2005:
Corporate Office Costs
Sales and Marketing $650,000 **
900,000 *** $1,550,000
Building Utilities 100,000
(units of output)
Quality Control 90,000
Material Handling 70,000
Raw Materials Used in
Direct Labor ($25/hour
Warranty costs 200,000 1,500,000
*In its best years, the plant ran at an average 95% of capacity (practical capacity: the
highest percentage considered attainable), but Dune Buggies are at the mature market stage
with 70-75% expected capacity utilization for the remaining life of the plant.
**Included in the above costs is $700,000 related to development of a new racecar, which,
if successful, will be brought to market in 2006: Sales and Marketing, $110,000; Product
Design Engineering $100,000; Process Design Engineering $90,000; Research and
***While some of the corporate General and Administrative Expense involved work on
the feasibility of a new racecar, no records of the corporate-level time or money spent on
the endeavor were maintained.