Managerial Analysis R&D Activities Fall Into Four Essay

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Managerial Analysis

R&D activities fall into four pools with the following annual costs.

Market analysis $1,050,000

Product design 2,350,000

Product development 3,600,000

Prototype testing 1,400,000

Total

Activities Cost Drivers Estimated Drivers

Market analysis Hours of analysis 15,000 hours

Product design Number of designs 2,500 designs

Product development Number of products 90 products

Prototype testing Number of tests 500 tests

(a) Compute the activity-based overhead rate for each activity cost pool

Activity-based overhead rate = total budget overhead / basis

= 1,050,000 / 15,000

= $70 per hour (Market Analysis)

Activity-based overhead rate = total budget overhead/basis

= 2,350,000 / 2,500

= $940 per design (Product Design Number)

Activity-based overhead rate = total budget overhead/basis

= 3,600,000 /

=$40,000 per product (Product development number)

Activity-based overhead rate = total budget overhead/basis

= 1,400,000 / 500

= $2,800 per test (Number of tests)

(b) How much cost charged to an in-house manufacturing department that consumed 1,800 hours of market analysis time, provided 280 designs relating to 10 products, and 92 engineering tests requests?

=Total Annual Cost for Market Analysis / Number of Hours of Analysis

= 1,050,000 / 1800

= $583.333 per hour (Market Analysis)

= Total Annual Cost for Product Design / Total Number of Designs

= 2,350,000 / 280

= $8,392.

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86 per design (Product Design)

= Total Annual Cost for Product Development / Total Number of Products

= 3,600,000 / 10

= $360,000 per product (Product Development)

= Total Annual Costs for Number of Tests / Total Number of Tests

= 1,400,000 / 92

=$15,217.39 per test (Prototype Testing)

(c) How much cost would serve as the basis for pricing an R&D bid with an outside company on a contract that would consume 800 hours of analysis time, require 178 designs relating to 3 products, and result in 70 engineering tests?

=Total Annual Cost for Market Analysis / Number of Hours of Analysis

= 1,050,000 / 800

= $5,898.88 per hour (Market Analysis)

= Total Annual Cost for Product Design / Total Number of Designs

= 2,350,000 / 178

= $13,202.25 per design (Design Development)

= Total Annual Cost for Product Development / Total Number of Products

= 3,600,000 / 3

= $1,200,000.....

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