Cost Analysis of Different Entry Doors

This assignment focuses on analyzing the cost structure of producing deluxe and standard entry doors. Students are tasked with calculating manufacturing costs per unit for both types of doors. They will then determine the profitability of each door type under different pricing scenarios and analyze a sales mix strategy that maximizes profits. The analysis involves understanding various cost elements, including material costs, labor costs, and overhead expenses.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
a: Estimation of the current system............................................................................................2
1. Total cost of manufacturing one unit of each type of door:...................................................2
2. Profit per unit for each type of door:......................................................................................2
b: Depicting the explanation for difference in overhead cost:...................................................3
c: Reviewing the overall machine related cost:..........................................................................3
d: Activity based costing data:...................................................................................................4
1. Computing the cost driver rate for every overhead activity: \.............................................4
2. Computing the revised manufacturing overhead cost per unit:.............................................5
3. Computing the revised total cost to manufacture one unit for each type of entry door:........6
e: Depicting whether the deluxe door is profitable as original data:..........................................6
f: Depicting the sales mix strategy:............................................................................................7
Reference and Bibliography:......................................................................................................8

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a: Estimation of the current system
1. Total cost of manufacturing one unit of each type of door:
Particulars Amount
Direct material cost unit 180
Manufacturing support cost per unit 80
Cost per unit for deluxe entry door D+M
Cost per unit for deluxe entry door 180+ 80
Cost per unit for deluxe entry door 260
Particulars Amount
Direct material cost unit 130
Manufacturing support cost per unit 120
Cost per unit for standard entry door D+M
Cost per unit for standard entry door 130+ 120
Cost per unit for standard entry door 250
2. Profit per unit for each type of door:
Particulars Amount
Cost per unit for deluxe entry door 260
Sales price per unit 650
Profit per unit for deluxe entry door S-C
Profit per unit for deluxe entry door 650-260

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Profit per unit for deluxe entry door 390
Particulars Amount
Cost per unit for standard entry door 250
Sales price per unit 475
Profit per unit for standard entry door S-C
Profit per unit for standard entry door 475-250
Profit per unit for standard entry door 225
b: Depicting the explanation for difference in overhead cost:
From the overall evaluation it could be identified that deluxe door manufacturing is
mainly conducted with the help of robotics, which is reducing the labour cost. In addition, the
overall support manufacturing cost is actually distributed according to the direct labour hours,
as the activities are mainly labour intensive (Needles, Powers & Crosson, 2013).
c: Reviewing the overall machine related cost:
Particulars Amount
Machine hours 300,000 mh
Deluxe products 50,000
Machine hour per product 300,000/50,000
Machine hour per product 6 mh
Particulars Amount

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Machine hours 300,000 mh
Standard products 400,000
Machine hour per product 300,000/400,000
Machine hour per product 0.75 machine hour
The relevant production of machinery product is low, while the machine hours are
constant, which is directly increasing the machine hours per product. In addition, from the
evaluation it could be identified that standard product machine per product is relatively low
as higher number of profit is been produced.
d: Activity based costing data:
1. Computing the cost driver rate for every overhead activity: \
Particulars Amount
Total 500
Cost 500,000
Set up 500,000 /500 = 1000
Particulars Amount
Total 600,000
Cost 44,000,000
Machine related activity 44,000,000 / 600,000
Per machine hour 73.33

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Particulars Amount
Total 250,000
Cost 5,000,000
Packaging activity 5,000,000 / 250,000 = 20 per shipments
2. Computing the revised manufacturing overhead cost per unit:
Particulars Amount
Deluxe number of units 50,000
Setup activity 1,000
Per machine hour 73.33
Per shipment 20
Deluxe setups 400
Deluxe machine 300,000
Deluxe packaging 50,000
Deluxe entry door per unit [(1,000*400)+(73.33*300,000)+(20*50,000)] / 50,000
Deluxe entry door per unit 468 per unit
Particulars Amount
Standard number of units 400,000
Setup activity 1,000
Per machine hour 73.33
Per shipment 20
Standard setups 100
Standard machine 300,000

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Standard packaging 200,000
Standard entry door per unit [(1,000*100)+(73.33*300,000)+(20*200,000)] / 50,000
Standard entry door per unit 65.25 per unit
3. Computing the revised total cost to manufacture one unit for each type of entry door:
Particulars Amount
Deluxe entry door 468+180 = 648
Standard entry door 65.25+130 = 195.25
e: Depicting whether the deluxe door is profitable as original data:
Particulars Amount
Deluxe price 650
Deluxe cost 468+180 = 648
Profit for deluxe 650-648 = 2
Standard price 475
Deluxe cost 195.25
Profit for deluxe 475+195.25 = 279.75
Particulars Amount
Deluxe price 650
Cost 260
Profit for deluxe 650-260 = 390

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Standard price 475
Deluxe cost 250
Profit for deluxe 475-250 = 225
f: Depicting the sales mix strategy:
The relevant sales mix strategy is relatively confiding eh overall future market value
of the company’s products. In addition, the company has two different types of products,
which could be used in designing the sales mix strategy. The company is relatively using the
overall robotics systems, which is mainly allowing the company to sell its products at high
prices. Therefore, the doors of deluxe nature will be sold for a higher price. Moreover, the
costs does not affect the overall sale mix strategy that is been adopted by the company
(Weygandt, Kimmel & Kieso, 2015).

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Reference and Bibliography:
Edmonds, T. P., Edmonds, C. D., Tsay, B. Y., & Olds, P. R. (2016). Fundamental
managerial accounting concepts. McGraw-Hill Education.
Needles, B., Powers, M., & Crosson, S. (2013). Financial and managerial accounting.
Nelson Education.
Warren, C. S., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting.
Cengage Learning.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting.
John Wiley & Sons.