\u03b3 machinehours Capacitor and amplifier costs go down in comparison to existing

Γ machinehours capacitor and amplifier costs go down

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γ ×machinehours - Capacitor and amplifier costs go down in comparison to existing costs because they use less machine hours Assumption: All overhead varies with DL$ and machine hours Cost Cross-Subsidization - I.C.A, I.C.B., Diode subsidized by capacitor and amplifier because they are taking on more cost than necessary 3 Center Cost System (Consultant) Main/Electrical Test Room Overhead (Machine Hours) Mechanical Test Room Overhead (Machine Hours) Product Direct Labor $ $ Hours $ Hours OH (DL$ ) 3 Cente r 2 Center 1 Cente r I.C.A. $917 63.34 8.5 112.63 10 20% 538.43 1,126.2 7 183.40 I.C.B. $2,051 63.34 14 112.63 26 20% 886.83 2,928.3 1 410.20 Capacitor $1,094 63.34 3 112.63 4.5 20% 190.03 506.82 218.80 Amplifier $525 63.34 4 112.63 1 20% 253.38 112.63 105.00 Diode $519 63.34 7 112.63 5 20% 443.41 563.14 103.80 - Three pools: administrative/technical and main room and mechanical room (all other burden) o Administrative/technical – DL$ - 20% rate o Machine hours in main room - $63.34 o Machine hours in mechanical room - $112.63 - The fact that the two room rates are different shows that it is beneficial to separate them - Regression OH Cost = α ( intercept ) + β () × DL$ + γ ×mainhours + λmechroomhrs - Amplifier cost goes down because it requires the least amount of time in the mechanical room Which One to Use? - Accuracy or precision (consultant’s system does a better job at this) o The inverse of the absolute difference of true cost and the calculated accounting cost - There is a cost associated with the costing system (more pools = more resources = more $) - Can “true cost” be known? Factors that prevent you from knowing o The cost of measurement – there is a cost associated with the costing system (more pools = more resources = more $) – do a cost benefit analysis o Joint cost – fixed relationships between input and output which means you cannot completely trace some costs back to the product o Fixed costs are not allocated with 100% accuracy
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- Maybe there is no such thing as true cost - How do you evaluate regression equations o How small the r^2 is o More variables – is a higher r^2 – more efficient Ratios of Reported Cost Product Two Center One Center Three Center Two Center Three Center One Center I.C.A. I.C.B. Capacitor Amplifier Diode New Machine Treated as a Separate Cost Center 1 st Year: Variable Depreciation Other Total Machine Costs $100,000 $500,000 $150,000 + $75,000 $825,000 Machine Hours 10% x 4,000 400 Burden Rate/Mach. Hr.
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