|

Group Assignment Case study: MosCo | An Analysis of ABC costing | | Prepared by: | Xiaoyu ZHENG 1204335 | Chen CHEN 1200801 | | |

Introduction:
MosCo is a semiconductor manufacturing (Wikipedia 2011) division of a computer systems company which recently reformed into a business unit. MosCo is facing a series of problems including cost behaviour, process manufacturing, capacity utilization and market pricing pressures.
The following seven questions address specific costing and pricing issues and an assessment of a managerial action.

Question1
The product cost drop of 1995 x100 by $227 is driven by the redistribution of support cost and the full utilization of capacity which allows savings. By comparing Exhibits B.2 andB.6, B.3 and B.7, together with detailed Exhibit B.5a, B.5b and B.5c, following can be seen:
1) The ABC review (Exhibit B.5a), when comparing to Exhibit B.4, a $1,000,000 cost of R&D is excluded from manufacturing process; as a result, a $1m deduction in total manufacturing spending is reflected, causing the product cost to drop. Furthermore, a redistribution of fabrication cost to probe, assembly and test will have an effect on wafer production cost, probe production cost, assembly production cost and test production cost (Exhibit B.4 & B.5a).
2) The adoption of new costing approach (Exhibit B.6 & B.7) is based full utilization of capacity. When comparing to the original approach (Exhibit B.2 &B.3), the planned wafer capacity is increased from 16,595 (Exhibit B.3) to full capacity of 26,000 (Exhibit B.7 & B.14).
The joint effect of the above stated factors explains the $227 drop in 1995 x100 product cost as illustrated below.
a) Wafer Fabrication dropped from $5,245.15 to $3,000.
The supporting cost for fabrication decreased from $16,429,500 to $10, 392,000 due to the ABC assessment.
The start capacity of wafer production has been reassigned from amount plan to produce (15,555) to the full utilization of capacity (24,960).
b) Probe cost/wafer dropped from $785.71 to $500.00.
The probe manufacturing cost increased from $11M to $13M due to the $2M redistribution of fabrication cost in the ABC assessment.
The start capacity of probe production has also been reassigned from plan to produce (14,000) to the full utilization of capacity (26,000)
c) Per-Assembly cost dropped from $9.26 to $8.00
The start capacity of assembly has been reassigned from plan to produce (175,000) to the full utilization of capacity (202,000)
d) Per-test cost increased from $32.14 to $40.00
The cost of total test spending increased from $5,062,600 to $8,100,000 due to the new assignment of cost defined in the ABC assessment
The start capacity of test has been reassigned from pan to produce (157,500) to full utilization of capacity (202,500).
Unfortunately, as shown above, the spending did not decrease but rather redistributed. The majority of reduction in wafer production is driven by the increased planned capacity at full utilization level and redistribution of spending, rather than a reduction in manufacturing spending, i.e. cost redistribution from fewer products to more products.

Question 2
Adopting the full utilisation (Wikipedia 2011) approach to product costing causes a significant change in the unit cost while comparing to the manufacturing cost to the amount produced. As illustrated in Question1, first impact is from the adoption of full utilisation approach which lowers the /die cost notably in the way of dividing the same expenditure by more planned products. The $227 cost reduction of 1995 x100 products, driven by the full utilisation approach (Wikipedia 2011), might stand the chance of being impractical or unachievable. The second impact, that increasing production to full capacity,