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Hello Cath, I would appreciate your assistance with this problem from the Kaplan practice exam bk. There’s no explanation given in there, but they gave $26 as the answer.
Thank youM manufactures products A,B and C. Products A and B are manufactured in batches of 10 units. Product C is a high value product that is manufactured in single units.
In a typical month, production comprises of 500 units of A, 400 units of B, and 20 of C. Product C is manufactured to order and it is unusual to manufacture more than 1 unit of C a day.
The quality control department has to inspect each unit produced and the total quality control department’s cost per month are $5020 which breaks down asSetting up test equipments=$2200
Inspection costs =$2820The test equipment has to be set up differently for each product and once set up can test up 10 units before being recalibrated.The time and cost for setting equipments up are the same for each product.
Each unit of A and B require the same amount of time for inspection, but unit C requires twice as much time time to inspect.
What is cost per unit of quality control for each unit of C under ABC/ABM systemHi please can you repost this in Ask a cima tutor P1 forum.
This forum is for students discussions.
Hope that’s ok
CathHi – on second thoughts – no need to repost – i may be able to ask our IT specialist to move this post to Ask a Tutor – once Ive answered.
So $2200 setting up test equipment is per set up ( they take the same length of time and are the same cost per set-up – so we need to divide the total cost over the total number of set ups).
Therefore there are 110 set ups… 50 setups for batches of product A, 40 for all batches of product B and 20 for each unit of product C.
They rarely make more than 1 product C per day – so we cant assume that that it will be made in batches of 10 – instead we assume each C needs a new set up ( so 20 setups in the period).$2200 / 110 setups gives us $20 per set up ( so one unit of C will have $20 relating to setup costs)
next the inspection costs are done per item- with product C taking x2 the time of product A or B. So if we can find the time per unit – we can take double for product C.
$2820 divided by total number of units which is 940 ( 500 of A , 400 of B and 20 of C) = $3 for an average inspection of a unit – we will allocate double amount to C so x2 = $3 = $6Hence
Setup costs for C will be $20
Inspection cost of C will be $3 x 2 = $6
Total Quality control cost per unit of C is $26.Hope that explains ok 🙂
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