Analysis Of Case Morelli Electric Motor Corporation

1139 words - 5 pages

Morelli Electric Motor Corporation has been
manufacturing electric motors for
commercial use for at least 25 years.
 The company produces three models which
are standard, deluxe, and heavy-duty
 The company uses a job-order cost
accounting system with manufacturing
overhead applied on the basis of DLH.
 The company's pricing formula has been set to each product's target price at 110% of its full product costs.

Morelli Electric Motor Corporation's selling price of the standard model has been under
price pressure from offshore that makes
them lowered the price to $110 of the target
price %116.

Cost per unit $105 $215 $232
Target selling price (cost x 110%) $116 $237 $255
Cost per unit x 1.10

pool rate = activity cost pool / cost drive quantity Activity cost per unit of product =
pool rate * cost driver quantity for products
/ product line production volume
Activity Activity cost Cost Cost drive pool products line Cost driver activity cost product line activity cost per
pool drive quantity rate quantity for prod for production line prod volume unit of product
Depreciation, machinery 1,480,000 Machine time 100 standard 40 592,000 20,000 29.6
deluxe 13 192,400 1,000 192.4
hea-dutyy 47 695,600 10,000 69.56
Maintenance, machinery 120,000 Machine time 100 standard 40 48,000 20,000 2.4
deluxe 13 15,600 1,000 15.6
hea-dutyy 47 56,400 10,000 5.64
Depreciation, taxes and insurance for factory 300,000 Factory space usage 100 standard 42 126,000 20,000 6.3
deluxe 15 45,000 1,000 45
hea-dutyy 43 129,000 10,000 12.9
Engineering 350,000 Engineering hours 100 standard 47 164,500 20,000 8.225
deluxe 6 21,000 1,000 21
hea-dutyy 47 164,500 10,000 16.45
Purchasing, receiving and shipping 250,000 # of material orders 100 standard 47 117,500 20,000 5.875
deluxe 8 20,000 1,000 20
hea-dutyy 45 112,500 10,000 11.25
Inspection and repair of defects 375,000 Engineering hours 100 standard 47 176,250 20,000 8.8125
deluxe 6 22,500 1,000 22.5
hea-dutyy 47 176,250 10,000 17.625
Material handling 400,000 # of material orders 100 standard 47 188,000 20,000 9.4
deluxe 8 32,000 1,000 32
hea-dutyy 45 180,000 10,000 18
Miscellaneous manufacturing overhead cost 295,000 Factory space usage 100 standard 42 123,900 20,000 6.195
deluxe 15 44,250 1,000 44.25
hea-dutyy 43 126,850 10,000 12.685
Activity cost for prodction line = pool rate * cost driver quantity for production line

Standard Deluxe Heavy-Duty Model Model Model
Raw Material $
10 $
25 $
42 Direct Labor $
10 $
20 $
20 Manufacturing overhead: Depreciation, machinery 29.6 192.4 69.56 Maintenance, machinery 2.4 15.6 5.64 Depreciation, taxes and insurance for
factory 6.3 45 12.9
Engineering 8.225 21 16.45 Purchasing, receiving and shipping 5.875 20 11.25 Inspection and repair of defects 8.8125 22.5 17.625 Material handling 9.4 32 18 Miscellaneous manufacturing overhead cost 6.195 44.25 12.685 total...

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