Activity-Based Costing; Value Chain Analysis Drilling Company uses activity-based costing and…

Activity-Based Costing; Value Chain Analysis Drilling Company uses activity-based costing and provides this information  Drilling has just completed 80 units of a component for a customer. Each unit required 100 parts and 3 machine hours. The prime cost is $1,300 per finished unit. All other manufacturing costs are classified as manufacturing overhead. Required 1. Compute the total manufacturing costs and the unit costs of the 80 units just completed using ABC costing. 2. In addition to the manufacturing costs, the firm has determined that the total cost of upstream activities, including research and development and product design, is $180 per unit. The total cost of downstream activities, such as distribution, marketing, and customer service, is $300 per unit. Compute the full product cost per unit, including upstream, manufacturing, and downstream activities. Also compute the relative proportion of each main cost category. What are the strategic implications of this new cost result? 3. Explain to Drilling Company the usefulness of calculating the total cost of the value chain and of knowing costs of different value-creating activities.

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