Beretta Product Costing Assignment

Beretta International has established a manufacturing and assembly facility in Accokeek, MD. The Beretta USA facility produces four different handguns, one of which is the Model 92 FS 9mm handgun. For more information on Beretta International and Beretta USA, you can check out the following videos and web sites:

(1) Beretta International

http://youtu.be/IOIrVO9NAOo (brief history of Beretta)

http://www.beretta.com/beretta-today/index.aspx?m=53&did=1500 (company history)

http://www.beretta.com/code-of-ethics/index.aspx?m=53&did=40862 (code of ethics)

http://youtu.be/XR4gaEF7bo4 (Factory tour in Italy)

http://youtu.be/rM39YJNl3xw (Beretta interview in Italian – Part 1)

http://youtu.be/kHqHBmst4Y8 (Beretta interview in Italian – Part 2)

(2) Beretta USA

http://www.berettausa.com/

http://www.berettausa.com/about/default.aspx (company history)

http://youtu.be/z7s2ioXNRag (Beretta USA facility)

http://youtu.be/1dk829CQqCk (conference room)

(3) Beretta Model 92

http://en.wikipedia.org/wiki/Beretta_92 (overview)

http://www.berettaweb.com/92%20Successo/Beretta%2092%20a%20global%20success%201a.htm# (general information)

http://www.berettaweb.com/sezionati/B%20sez%2092FS.htm (exploded view)

http://youtu.be/2TAuam6D7P0 (general)

http://youtu.be/_BOMmIvMRm8 (Beretta vs Glock)

(4) Beretta Model 70

http://youtu.be/Z18bLwiOvpM (disassembly/reassembly)

(5) Glock vs Beretta

http://youtu.be/hH836XeSE9s (generic comparison)

Production of the Beretta 92FS 9mm handgun

Appendix A provides a diagram of the Model 92 FS handgun that identifies 53 parts. For the purposes of this assignment, we are assuming that only the six parts highlighted on the list are actually manufactured at the Accokeek, MD facility. All of the other parts will be assumed to be purchased from outside vendors.

The Beretta USA facility conducts the following major categories of activities in support of the manufacturing and sale of four different handgun models produced at the facility of which the Model 92 FS is one:

· Administration, including plant management, accounting and finance, human resources, marketing.

· Material delivery and storage.

· Manufacturing operations, including a chrome plating facility.

· Assembly operations.

· Testing.

· Engraving.

· Packaging, storage, and shipping.

· Limited research and development activities.

The following describes the manufacturing operations for the six parts produced at Beretta USA:

Part #1 – Barrel

The barrel arrives at the facility as a rectangular piece of steel from an outside vendor. The barrel goes through 11 different operations on 5 different computer-controlled machines. Once a part is placed in a machine, all operations are completed before the part is removed by the employee to be placed in the next machine. Only two employees are needed to operate all 5 machines at one time. These machines also make the barrels of the other handguns produced in the Beretta USA facility. However, 70% of the manufacturing time for all of these machines is devoted to the production of Model 92FS handgun.

Once the barrel is complete it is sent to the chroming unit, which chromes the inside of the barrel to extend the usable life of the handgun. The barrels of all of the handguns produced at the Beretta USA facility go through the chroming operation. 75% of the time expended in the chroming facility is for the Model 92 FS handgun.

Because the time it takes to complete the barrel is less than the time required to manufacture the aluminum frame, barrels may be stored until needed in assembly.

Part #5 – Slide

The slide arrives at the facility as a rectangular piece of steel from an outside vendor. The slide goes through 14 different operations on 6 different computer-controlled machines. Once a part is placed in a machine, all operations are completed before the part is removed by the employee to be placed in the next machine. Only three employees are needed to operate all 6 machines at one time. These machines also make the slides of the other handguns produced in the Beretta USA facility. However, 80% of the manufacturing time for all of these machines is devoted to the production of Model 92FS handgun.

Because the time it takes to complete the slide is less than the time required to manufacture the aluminum frame, slides may be stored until needed in assembly.

Part #6 – Extractor

The extractor arrives at the facility as a rectangular piece of steel from an outside vendor. The extractor goes through 6 different operations on 2 different computer-controlled machines. Once a part is placed in a machine, all operations are completed before the part is removed by the employee to be placed in the next machine. Only one employee is needed to operate both machines at one time. These machines also make the extractors of the other handguns produced in the Beretta USA facility. However, 70% of the manufacturing time for all of these machines is devoted to the production of Model 92FS handgun.

Because the time it takes to complete the extractor is less than the time required to manufacture the aluminum frame, extractors may be stored until needed in assembly.

Part #12 – Firing pin

The firing pin arrives at the facility as a rectangular piece of steel from an outside vendor. The firing pin goes through 4 different operations on 3 different computer-controlled machines. Once a part is placed in a machine, all operations are completed before the part is removed by the employee to be placed in the next machine. Only one employee is needed to operate the 3 machines at one time. These machines also make the firing pins of the other handguns produced in the Beretta USA facility. However, 75% of the manufacturing time for all of these machines is devoted to the production of Model 92FS handgun.

Because the time it takes to complete the firing pin is less than the time required to manufacture the aluminum frame, firing pins may be stored until needed in assembly.

Part #14 – Safety lever

The safety lever arrives at the facility as a rectangular piece of steel from an outside vendor. The safety lever goes through 9 different operations on 4 different computer-controlled machines. Once a part is placed in a machine, all operations are completed before the part is removed by the employee to be placed in the next machine. Only one employee is needed to operate all 5 machines at one time. These machines also make the safety levers of the other handguns produced in the Beretta USA facility. However, 70% of the manufacturing time for all of these machines is devoted to the production of Model 92FS handgun.

Because the time it takes to complete the safety lever is less than the time required to manufacture the aluminum frame, safety levers may be stored until needed in assembly.

Part #20 – Frame

The frame arrives at the facility as a solid piece of aluminum that looks like the outline of a gun from an outside vendor. The frame goes through 16 different operations on 7 different computer-controlled machines. Once a part is placed in a machine, all operations are completed before the part is removed by the employee to be placed in the next machine. Three employees are needed to operate all 7 machines at one time. These machines also make the frames of the other handguns produced in the Beretta USA facility. However, 85% of the manufacturing time for all of these machines is devoted to the production of Model 92FS handgun.

It takes the most total time to machine the aluminum frame. Approximately75% of the aluminum is machined away. This scrap aluminum is accumulated in drums and recycled. The scrap from all of the other manufactured parts is also accumulated and recycled.

Upon completion of all manufacturing and the receipt of the vendor-provided parts, the Beretta USA facility assembles the Model 92FS handgun. All handguns produced at the facility are assembled by the same employees. Approximately 80% of their time is employed in the assembly of the Model 92 FS handgun.

Upon completion of the assembly process, random samples of the Model 92FS handguns are tested. 80% of the total time used to test all of the handguns manufactured at the Beretta USA facility is used to test the Model 92 FS handguns.

A few orders require that the gun barrels be engraved. For example, the FBI Academy at Quantico, VA may order a shipment of the Model 92 FS handgun for graduating agents. Most of the agents request that their guns be engraved. This is done after testing.

Upon completion of the testing and engraving, all handguns are packaged. Most of the Model 92 FS handguns are shipped right away, but some may be stored and applied to a future order.

The Beretta USA facility conducts limited research and development. This can include exploring possible changes in the production process. Occasionally, a new type of machine may be tested in the manufacturing process. All of these activities comprise less than 1% of the total available work week.

Assignment

Beretta International is reevaluating the pricing of the Beretta Model 92 FS 9 mm handgun in the USA. The company wants to do a thorough review of the costs associated with operating the Accokeek, MD facility and the costs associated with manufacturing the Model 92 FS handgun at the facility.

1. From the perspective of Beretta International, identify the direct and indirect costs of operating the Beretta USA facility. Discuss which of these costs would be relevant to Beretta International if it wanted to measure the efficiency of the Beretta USA facility.

2. Identify the direct and indirect costs associated with the manufacture and sale of the Model 92 FS handgun, assuming the facility produces this handgun and three others.

3. Discuss how the cost of engraving the Model 92 FS handgun would affect the price charged to a customer for the order.

NOTE: You do not have to complete a numerical analysis for this assignment, but you must clearly identify all assumptions used in your written analysis.

Appendix A

Beretta Model 92 FS 9mm Handgun

Partial List of Parts

Reference / Description / Reference / Description
1 / BARREL / 42 / PIN,SEAR
2 / LOCKING BLOCK / 43 / MAGAZINE CATCH ASS'Y
3 / PLUNGER, LOCKING BLOCK / 47 / LANYARD LOOP PIN
4 / PIN,LOCKING BLOCK SPRING / 48 / GRIP, RIGHT(plastic)
5 / SLIDE W/REAR SIGHT / 49 / GRIP LEFT(plastic)
6 / EXTRACTOR / 50 / SCREW,GRIP
7 / PIN, EXTRACTOR / 51 / BUSHING, GRIP
8 / SPRING, EXTRACTOR / 52 / MAGAZINE
9 / SIGHT, REAR/3 DOT / 57 / SPRING, FIR. PIN BLOCK
10 / TRIGGER BAR DETENT / 58 / FIRING PIN BLOCK
12 / FIRING PIN / 60 / SPRING,SAFETY PLUNGER
13 / FIRING PIN SPRING / 61 / SAFETY,PLUNGER
14 / SAFETY LEVER / 63 / RECOIL SPRING PIN
15 / FIRING PIN PLUNGER / 64 / LEVER,FIR PIN BLK
18 / RECOIL SPRING / 69 / LOCK WASHER
19 / GUIDE,RECOIL SPRING POLYMER
20 / FRAME (aluminum)
21 / DISASSEMBLY LEVER
22 / SLIDE STOP SPRING
23 / SLIDE STOP
24 / TRIGGER (plastic)
25 / PIN, TRIGGER
26 / SPRING, TRIGGER
27 / BAR, TRIGGER W/TRIG SLOT
28 / SPRING, TRIG BAR
29 / BUTTON, DISASSEMBLY
30 / DISASSEMBLY SPRING
31 / HAMMER RELEASE LEVER
32 / EJECTOR
33 / HAMMER RELEASE LVR PIN
34 / EJECTOR SPRING PIN-USE
35 / HAMMER
36 / PIN, HAMMER
37 / HAMMER STRUT
38 / HAMMER SPRING
39 / LANDYARD LOOP (plastic)
40 / SEAR
41 / SPRING, SEAR

Appendix B

Beretta USA Income Statement 20XX

20XX
Sales
Model 92FS / $80,000,000
Other three handguns / 150,000,000
Total / $230,000,000
Cost of Goods Sold
Model 92FS / $25,000,000
Other three handguns / 60,000,000
Total / $85,000,000
Gross profit / $145,000,000
Operating Expenses
Depreciation / $12,000,000
Material delivery and storage / 500,000
Plant maintenance and security / 600,000
Testing / 120,000
Product storage / 350,000
Shipping / 600,000
Plant management / 400,000
Controller / 350,000
Human resources / 200,000
Marketing / 500,000
Research and development / 1,000,000
Total / $16,620,000
Operating income / $128,380,000
Interest / $100,000
Taxes / $24,000,000
Net income / $104,280,000