Cost Case Behemoth Motors Corp.
Paper instructions:
FOR THE FIRST PART OF THE PAPER (3 PAGES IN LENGTH) PLEASE FOLLOW THESE DIRECTIONS:
Attached Relevant Cost Case Behemoth Motors Corp.
Behemoth Motors Corp. (BMC) is a major manufacturer of automobiles in the United States. BMC has decided to include a Global Positioning System navigator (GPSN) in all of its Sports Utility Vehicles (SUV) beginning with the 2013 model year. These models are just now being delivered and the GPSN units are manufactured in the Detroit BMC facility. Currently and for the foreseeable future, BMC will need 8,000 GPSNs per month. The total manufacturing cost of the GSPN is $425 per unit calculated as follows:
BMC experiences a high level of quality control over these units with only 2% of total production failing quality control testing. 98% of all units manufactured are installed in SUVs.
Wally Wizard, the GPSN manager, has been approached by Far East Enterprises, Ltd (FEE) who has offered to outsource these units for MBC. FEE is a three-year-old electronic manufacturing company located in China and has experienced outstanding growth during that three-year period. FEE has offered to manufacture and deliver to Detroit 8,000 GPSN units at a unit cost of $400 beginning on Jan. 1, 2013. FEE asks for a two-year contract.
Under the existing arrangement, the direct materials are all purchased locally under month-to-month contracts. There are no future obligations under these contracts.
There are 100 direct labor employees involved in this process. These employees can be laid off but if they are, BMC must pay a penalty of $66,000 per year to the employees union. This penalty will continue for 4 years.
There are 10 supervisors, each earning $6,000 per month, assigned to the project. If the product is outsourced, all of these supervisors can be assigned to other supervisory positions within BMC.
If the product is outsourced, half of the factory floor space can be used for storage for materials that are currently stored in rented storage facilities. These rented facilities currently cost BMC $5,000 per month. There is no alternative use for the remaining factory floor space. The current $2.50 per sq. ft. charge is based on the overall BMC factory costs.
General company overhead is first assigned to operating units on the basis of total product produced and then further to produced units on a per unit basis. If the product is outsourced, this overhead will be reassigned to other operating divisions although total corporate overhead incurred will remain unchanged.
You have determined the following additional facts. The units manufactured by FEE will have the same quality as those manufactured by BMC and the delivery schedule will have the same reliability as that of BMC.
Make a recommendation to Wally Wizard in a 3 page paper. Be sure to support your recommendation with the decision-making process outlined in the background information.
It is important to answer the questions above. The discussion should be three pages and written in a clear and concise manner. Support your discussion with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.
Jay, B., (2004). Relevant costs for decision-making, Retrieved from: http://www.accountancy.com.pk/articles_students.asp?id=142
Brian Routh, Decision Making & Relevant Information (2011). This series of videos explains topics of decision making process. It is an excellent introduction and overview of relevant information. You can find other useful videos in related links.
FOR THE PART TWO (2 PAGES)
Review the processes in your company and identify a decision that has recently been made or will be made in the near future in your organization. Next, please identify at least two relevant and two non-relevant costs for this decision. Your report should include
The name and nature of the organization
The activity and time period you used
The inputs you used
Your results
Any implications from your results
It is important to answer the questions above. The discussion should be two pages and written in a clear and concise manner. Support your discussion with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved.
FOR THE PART THREE (1 PAGE)
Cost allocations have to make sense. What drives consumption of costs? What are drivers and how do they help in the allocation process?
Do research on the Internet and show the reference for the information.
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