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CoursHeroTranscribedText: EXTENDED ANALYSIS AND INTERPRETATION PROBLEM AIP 3.10 Pilot Plant The Bion Company has a Research and Development [R&D) building that is shared by three wire and cable groups: High Voltage, Medium Voltage, and Low Voltage. Adjacent to the R&D building is a pilot plant, a smallvscale production facility designed for limited runs of experimental and commercial products. The three groups rely on the pilot plant to produce samples of their formulations. In the pilot plant, sample sizes vary from about 1,000 kilograms to 10,000 kilograms. The R&D groups, including the pilot plant, are run as cost centers. The pilot plant also takes on special production runs for external customers that are too small for a regular plant. The pilot plant consists of three combination blendingfextruding machines, which produce pellets of compounded material. Unlike large commercial compounding machines, which can operate 24 hoursfday, these machines are run for approximately 1,000 hours a year. In the past, the pilot plant has costed its jobs based on direct materials, variable machine time, and allocated over head. Overhead is allocated by machine time. A single plantwwide machine rate is calculated pooling all three machines. The overhead pool includes plant xed costs plus the labor cost of the department. Approximately 20 percent of the machine technicians' time is spent performing general cleanwup and maintenance. Before each job, machine time is calculated by a computer program, which outputs feed rate and setup parameters. Each product is scheduled to a specic machine based on its formulation. The cost schedule of each machine is shown below. Capacity represents the historic annual average capacity. Clean-up (hours/batch) Capacity (kilograms/year) Variable Cost (S/hour) Operators Machine 1 250,000 25 Machine 2 250,000 25 - N Machine 3 500,000 50 Fixed costs: $200,000/year Labor costs: 1 manager @ $45,000/year 6 technicians @ $30,000/year While formulations vary considerably, 90 percent of the blends are either resin or flame-retardant magnesium hydroxide. These bulky materials are normally ordered one to two weeks ahead of time, and take up much of the floor space. The additives are quite standard and are kept in stock. Weigh-ups and general set-up are time consuming and vary from job to job: a formulation that requires seven additives takes considerably more time to prepare than a similar run with two additives. In the past, time spent on set-up was not tracked, but it is a simple matter for the chief operator to include these numbers with the run report. One of the technicians is not assigned to a particular machine, but is responsible for arranging stock on the floor. The manager spends most of his time scheduling runs and attending to administrative work. In a typical job, total weigh-up time is the amount of labor time required to locate, prepare, and mix the direct materials prior to inserting them in the machine. Job 71302: Composition and Direct Cost Sample run 5,000 kilograms: 90% NCPE-0600, RESIN $0.10/kg. 8% KISUMA, FLAME RETARDANT $0.12/kg. 2% COMPOUND Z, ANTI OXIDANT $0.14/kg. Run on machine 1 250 kilograms per hour for 20 hours Total weigh-up time" 16 employee hours Total weigh-up time is amount of labor time required to locate, prepare, and mix the direct materials prior to inserting them in the machine. a. Calculate the cost of the sample run as charged to the Low Voltage department. b. What is wrong with this system? Construct an alternative costing system and describe its benefits. c. Re-calculate the cost of this run using this new system

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