206250hr Year 6 Variable Depreciation Other Total Machine Costs 600000 160000

206250hr year 6 variable depreciation other total

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$2,062.50/hr Year 6: Variable Depreciation Other Total Machine Costs $600,000 $160,000 $150,000 $910,000 Machine Hours 60% x 4,000 2,400 Burden Rate/Mach. Hr. $379.17 New Machine Combined 1 st Year: Variable Depreciation Other Total Existing Cost 887,379 88,779 1,126,958 $2,103,116 Machine Costs $100,000 $500,000 $150,000 + $825,000
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$75,000 Total Cost $2,928,116 Machine Hours 10% x 4,000 33,201 33,601 Burden Rate/Mach. Hr. $87.14/hr Year 6: Variable Depreciation Other Total Existing Cost 887,379 88,779 1,126,958 2,103,116 Machine Costs $600,000 $160,000 $150,000 $910,000 Total Cost $3,013,116 Machine Hours 60% x 4,000 33,201 35,601 Burden Rate/Mach. Hr. $84.64/hr Separate Pool Combined Pool - Death Spiral - To avoid, you’d need to take losses because recovering the entire cost is too expensive for the consumer - Only charge 10% of fixed costs - Existing customers are subsidizing the new machine and will leave - Cross subsidization - Determining system depends on your company’s strategy (ex: keep price sensitive customers) Spending Perspective of Cost - How much resources are spent or sacrificed at different levels of production - Step cost curve - The spending level goes way up but the volume does not change as much – death spiral o Cannot charge the new workers more for the difference and cannot split it evenly, the remaining “unused” fixed cost should be the company’s own loss Consumption Perspective of Cost - How much of the resource is in use (only charge the portion that is being utilized) Seligram Case Summary - Cost systems become obsolete with: o Technological/process change o Product mix change
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o Changing economics of production o Changing corporate strategy - Product costs are systematically distorted when products consume overhead resources in proportions that differ from the proportions of the allocation basis (i.e. direct labor hours) - Cost system design can be employed to ensure that process flows and cost flows coincide o Cost centers o Allocation bases - Cost systems can induce shifts in firm strategy
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