|
|
Enron Mail |
For what its worth, see below. As a disclaimer I have little confidence
that the approach I took was the best one. -----Original Message----- From: hudacko@Haas.Berkeley.EDU [SMTP:hudacko@Haas.Berkeley.EDU] Sent: Tuesday, February 15, 2000 8:36 AM To: dasovich@haas.berkeley.edu; msmith@haas.berkeley.edu Subject: Do you know your costs? Gentlemen; While I pretend to know something about wine, I must admit I know nothing about costing. Would you be so kind as to offer your opinions on the following: (1) Plastic rings- the 10K capital investment should not be considered in the marginal cost, as it is an investment to be depreciated over useful life of equipment (T/F) To cover my bets I did it both excluding the 10K, and including the 10K, making different assumptions in each case (1b) For incremental (marginal) costs, we should not look at overhead and period costs (ie in Vortec problem the S&A component was held constant; is that true here as well even though these are allocated based on direct labor)? I broke things down into variable overhead (.8direct labor) and fixed, and assumed the fixed component didn't matter since the way in which it was being allocated was somewhat arbitrary and hence shouldn't guide decision making. (1c) Variable overhead costs- are these in addition to the fixed overhead costs (Mfctring + S&A), or should they be subtracted from one or both? I interpret the controller's statement to mean that he missed them in the schedule provided, and that we need to add them, in addition to the other two. I interpreted it as part of total overhead, not in addition to. (2) For next 34500 steel rings, materials are sunk cost and not included as a cost(T/F) T (2B) same as (1B) incremental costs do not include Overhead costs? I included the variable component of overhead (.8 direct labor) but not other overhead. Note trick for problem 2: Since the conversion to steel rings would be done in the summer at a 100% direct labor rate, and since workers in the summer would otherwise be getting paid at 70% rate for doing nothing, one might interpret that the incremental cost of direct labor is only 100%-70%=30% the rate it would otherwise be. This makes the incremental cost of doing the steel to steel ring conversion much cheaper than it would otherwise be. (3) Differential cost means what? Difference in cost between Finished Goods inventory and the WIP inventory? It seems to me that it was undefined and hence you need to state explicitly what a relevant comparison is and make it. In this case I interpretetd it as the difference in cost between producing the steel rings and a like number of plastic rings, and assumed that the cost of producing the steel rings in inventory is 0 since its already sunk. Your comments are greatly appreciated! Jonathan Jonathan Hudacko 415.305.4293 (HM) 510.649.6476 (WK) ---------------------------------------------- E-mail@stanfordalumni.org is brought to you by the Stanford Alumni Association and Critical Path.
|