# Case 18-1 Huron

Case 18-1 Huron Automotive Company Question 1 1. the present method: The cost = DLH*hourly rate = DHL*55. 96 2. the first proposed method: The cost=? (each department’s DHL* departmental total cost hourly rate) total cost hourly rate = labor rate per hour +overhead per hour 3.

the revised proposed method: The cost =? (each department’s DHL* departmental total cost hourly rate) total cost hourly rate = labor rate per hour +overhead per hour the overhead per hour is calculated at normal volume | CS-29 injectors (per batch of 100)| Spare parts for inventory (per typical month)| work for other divisions (per typical month)| the present method| \$ 7,050. 96| \$ 94,516. 44| \$ 188,697. 12| the first proposal| \$ 8,172. 86| \$ 126,685.

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5| \$ 250,565. 5| the revised proposal| \$ 8,063. 42| \$ 125,218. 5| \$ 247,714. 9| Question 2 1. The differences among the methods are significant a.

The calculation of the costs, cost control b. The charges to outside departments c. Judging departmental performance d. The pricing for the products and service e. The ability to compete in the market 2.

The reasons for the differences a. The choice about the cost center b. The bases for the estimation Question 3(a) The new hourly rate is showed below: ? | Labor:| Overhead:| Hours:| Casting/stamping| \$54,604| \$88,480| 2,528| Grinding| 38,520| 79,900| 2,140| Machining| 191,876| 268,625| 7,675| Custom work | 57,165= 81664*0. 7| 132,690 = 35*3712*(1-0. 1*0.

3)+400000/(5*12)| 2,599 = 3712*0. 7| Assembly| 291,784| 537,495| 15,357| TOTAL | 633,949| 1,107,190| 30,299| Total labor and overhead| \$1,741,139| ? | New hourly rate = 1,741,139/30299 = \$57. 46| The costs for the custom work department in July : . new rate: 57. 46*3712*0.

7=\$149,304 2. the former rate: 55. 96*3712=\$207,724 Question 3(b) If the first proposed method is applied to the question: | labor | Overhead | Hours | Custom work| 57,165/2599=\$21. 99| 132,690/2599=\$51. 05| 2599| Hourly rate = 21.

99+51. 05 = \$73. 04 per hour| The costs for the custom work department in July : 1. the new hourly rate: 73. 04*2599=\$189,831 2. the former hourly rate: 62.

48*3712=\$231,926 Question 4 Use the data in exhibit 3 to calculate the cost of a batch of 100 model CS-29: 1. under the present costing method: total cost= 126*55. 6+4200=\$11,250. 96 2. under the first proposed costing method: total cost =21*52.

97+12*48. 14+58*87. 52+35*40. 19+4200=\$12,372. 86 The sales revenue: 100*113=\$11,300 If use the present costing method ,the price can be increased, though the sales revenue can cover the total costs; If use the first proposed costing method, cs-29 should be dropped from the product line ,it is not profitable if the price is not increased.

Question 5 We can use calculate the cost of CS-29 and the cost of CS-30, when the price is the same ,we can see that the cost of CS-30 is lower than that of CS-30.So the company may probably chose to product CS-30. The cost of cs-29 ?| Labor per hour| Overhead per hour| total cost per hour| hours| Casting/stamping| 21. 6| 31. 37| 52. 97 | 21| Grinding| 18| 30.

14| 48. 14 | 12| Machining| 25| 62. 52| 87. 52 | 58| Assembly| 19| 21. 19| 40. 19 | 35| Total labor and overhead| \$8,173 | total costs| 8173+4200=\$12,373| The cost of cs-30 ?| Labor per hour| Overhead per hour| total cost per hour| hours| Casting/stamping| 21.

6| 31. 37| 52. 97 | 12| Grinding| 18| 30. 14| 48. 14 | 7| Machining| 25| 62.

52| 87. 52 | 17| Assembly| 19| 21. 19| 40. 9 | 35| Total labor and overhead| \$3867| total costs| 3867+8000=\$11,867| Question 6 | the first proposal| the revised proposal| product pricing| has to change over month| can be stable| cost control| more complicated but more accurate| convenient| inventory valuation| | | charges to outside departments| reflect the detail changes every month | | judging departmental performance| effectively| Can comparedepartmental performance to the normal level| diagnostic uses of cost data| | it can reflect the actual volume and cost’s change when compared to the normal level| 