Problem 14-10 Nelli Mwalilino Problem 14-10 Stowidge Divison TQM of rotors ...

Question

Problem 14-10
        Nelli Mwalilino
        Problem 14-10
        Stow
idge Divison TQM of rotors before ISO 9000          Volume
                480,000
        Particulars    Amount Per Unit    Total for Yea
        Selling Price     14.00    6,720,000
        Direct Material     4.30    2,064,000
        Direct Labour    2.40    1,152,000
        Mfg Overhead (Fixed )    2.05    984,000
        Variable Overheads    1.60    768,000
        Total Cost    10.35    4,968,000
        Unit Profit     3.65    1,752,000
        Stow
idge Divison TQM of rotors with ISO 9000         Volume                    Stow
idge Divison TQM of rotors with ISO 9000         Volume
                494,000                            761,000        480000     XXXXXXXXXX
        Particulars    Amount Per Unit    Total for Year        Old Cost    Delta        Particulars    Amount Per Unit    Total for Yea
        Selling Price     14.00    6,916,000        14.00    - 0        Selling Price     14.00    10,654,000
        Direct Material     4.73    2,336,620        4.30    0.43        Direct Material     4.73    3,599,530
        Direct Labour    2.76    1,363,440        2.40    0.36        Direct Labour    2.76    2,100,360
        Mfg Overhead (Fixed )    2.05    1,012,700        2.05    - 0        Mfg Overhead (Fixed )    2.05    1,560,050
        Additional Cost of ISO 9000    0.47    232,000        0    0.47        Additional Cost of ISO 9000    0.30    232,000
        Variable Overheads    1.60    790,400        1.60    - 0        Variable Overheads    1.60    1,217,600
        Total Cost    11.61    5,735,160        10.35    1.26        Total Cost    11.44    8,709,540
        Unit Profit     2.39    1,180,840        3.65    (1.26)        Unit Profit     2.56    1,944,460
                                    It is assumed that the number of more units will be sold due to improved Quality
                                    and ISO XXXXXXXXXXThe capacity used is by selling 480,000 is only 63 per cent .
                                    If more unit were sold it will improve the profit of Stow
ide Division and
                                    It is benefical to go for ISO 9000 Certification .

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Robert · Accepted Answer

Memo to Management 
To: Management of Stowbridge Division 
From: Cost Accountant 
Date: July 3rd, 2017 
Subject: Proposal for TQM and ISO Certification 
The cost department has drawn attention to two major aspects of the company. One of 
them is a related to production department and other is a certification issue which serves as 
a catalyst for the growth of the company. 
 I calculated the cost of each unit of rotors which came out to be $ 3.65 at capacity of 
480000. The current production is being carried out at a level much beyond the desired level 
i.e. full capacity level .With the change in environment, a company cannot follow traditional 
cost accounting methods if it aspires to grow and become a market leader in their industry.

Problem 14-10 Nelli Mwalilino Problem 14-10 Stowbridge Divison TQM of rotors before ISO 9000 Volume 480,000 Particulars Amount Per Unit Total for Year Selling Price 14.00 6,720,000 Direct Material...

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