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Cost Analysis of City Sol manufactures Company

Question

City Sol manufactures and sells three fantastic products. Management has set the prices as marked up 15% above cost. Product A requires three manual assembly operations, two machining steps, and no computer assembly steps; Product B requires five manual assembly operations, five machining steps, and ten computer assembly steps; while product C requires ten manual assembly operations, six machining steps, and six computer assembly steps. The projected costs and planned volumes are as follows;

  Table 1:

The Manufacturing Overhead Costs are expected to be $106,000. See details in Table 2 below. Since the vice-president wants to know how much each product costs in order to set prices, the accountant decided that labour costs was the easiest indicator of capacity usage and as such it was decided to allocate the MOH based on labour costs.

        Table 2:

                    

Now in evil Saskatchewan there were three separate companies preparing to start production and sale of the products that were similar and directly competitive to City Sol's. Each company specialized in one of the products. The following industry report provides the cost projections for each of the separate companies (See Table 3 below);

        Table 3:

Required:

Prepare an informal memo to the Vice President of City Sol detailing any numeric analysis supporting or not supporting the current pricing strategy and the potential impact upon market entry from Saskatchewan companies.

Summary: This question belongs management accounting and discusses about a company’s products and its manufacturing costs and to prepare an informal memo regarding products manufacturing costs.

Total word count: 1091

 

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