Bridgeton Case Questions

MBA 6035

Bridgeton Exam Case Questions

***All calculations are shown in the excel table included as a separate document***

1. The overhead allocation rate used in the 1987 model study at the ACF was 435% of DL cost. Calculate the overhead allocation rate using 1987 model year budget. Why do you get different numbers? Now calculate the overhead allocation rates for 1998—1990. Are the changes significant and why have these changes occurred?

The calculated overhead allocation rate for 1987 is 437.38%.

This is achieved by dividing the total overhead costs ($107,956,000) by the total direct labor costs ($24,682,000).

There are a couple reasons why the numbers may be different, the most common being rounding differences. Also, some of the direct costs may have been classified as overhead costs.

1987 | 1988 | 1989 | 1990 |

437% | 434% | 577% | 563% |

Yes, the changes are significant, especially between 1988 and 1989, there is a change of 33%. Products were outsourced between these years which reduced director labor costs. There was a small decease in overhead costs as well, but not significant. The combination caused the overhead allocation rate to increase.

2. Consider two products in the same product line.

| Product 1 | Product 2 |

Expected Selling price | $62 | $54 |

Standard material cost | 16 | 27 |

Standard labor cost | 6 | 3 |

Calculate the expected gross margin %s on each product based on 1988 and 1990 model year budgets, assuming labor and material costs do not change. Are the products reported by the cost system appropriate for use in the strategic analysis?

| 1988 |   | 1990 |   |

Product | 1 | 2 | 1 | 2 |

| | | | |

Expected Selling | 62 | 54 | 62 | 54 |

Standard Material | 16 | 27 | 16 | 27 |

Standard Labor | 6 | 3 | 6 | 3 |

| | | | |

Overhead @ % | 26.0670515 | 13.0335257 | 33.7794639 | 16.889732 |

Total Cost | 48.0670515 | 43.0335257 | 55.7794639 | 46.889732 |

Gross Margin | 13.9329485 |...