Blossom Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $120 Direct labor 60 Variable overhead (70% of direct labor) 42 Fixed overhead (30% of direct labor) 18 Manufacturing cost per unit $240 The unassembled bikes are sold to retailers at $396 each. Blossom has unused productive capacity that is expected to continue indefinitely; management has concluded that some of this capacity could be used to assemble the bikes and sell them at $437 each. Assembling the bikes will increase direct materials by $5 per bike and direct labor by $10 per bike. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the bikes. Prepare an incremental analysis for the sell-or-process-further decision. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses eg. (45). Do not leave any field blank. Enter O for the amounts.) Net Income Process Increase Sll Further (Decrease) Should Blossom sell or process further? Blossom Bikes should > >

Blossom Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $120 Direct labor 60 Variable overhead (70% of direct labor) 42 Fixed overhead (30% of direct labor) 18 Manufacturing cost per unit $240 The unassembled bikes are sold to retailers at $396 each. Blossom has unused productive capacity that is expected to continue indefinitely; management has concluded that some of this capacity could be used to assemble the bikes and sell them at $437 each. Assembling the bikes will increase direct materials by $5 per bike and direct labor by $10 per bike. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the bikes. Prepare an incremental analysis for the sell-or-process-further decision. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses eg. (45). Do not leave any field blank. Enter O for the amounts.) Net Income Process Increase Sll Further (Decrease) Should Blossom sell or process further? Blossom Bikes should > >

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 4EB: Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all...

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Patz Company produces two types of machine parts: Part A and Part B, with unit contribution margins of 300 and 600, respectively. Assume initially that Patz can sell all that is produced of either component. Part A requires two hours of assembly, and B requires five hours of assembly. The firm has 300 assembly hours per week. Required: 1. Express the objective of maximizing the total contribution margin subject to the assembly-hour constraint. 2. Identify the optimal amount that should be produced of each machine part and the total contribution margin associated with this mix. 3. What if market conditions are such that Patz can sell at most 75 units of Part A and 60 units of Part B? Express the objective function with its associated constraints for this case and identify the optimal mix and its associated total contribution margin.
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are 12,960,000 per year. The total labor minutes available are 1,440,000. During the year, the cell was able to produce 0.6 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs. Required: 1. Compute the theoretical conversion cost per unit. 2. Compute the applied conversion cost per minute (the amount of conversion cost actually assigned to the product). 3. Discuss how this approach to assigning conversion cost can improve delivery time performance. Explain how conversion cost acts as a performance driver for on-time deliveries.
Reubens Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are: A potential supplier has offered to sell Reuben the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided, If Reuben accepts the offer, what will the effect on profit be?
Rolertyme Company manufactures roller skates. With the exception of the rollers, all parts of the skates are produced internally. Neeta Booth, president of Rolertyme, has decided to make the rollers instead of buying them from external suppliers. The company needs 100,000 sets per year (currently it pays 1.90 per set of rollers). The rollers can be produced using an available area within the plant. However, equipment for production of the rollers would need to be leased (30,000 per year lease payment). Additionally, it would cost 0.50 per machine hour for power, oil, and other operating expenses. The equipment will provide 60,000 machine hours per year. Direct material costs will average 0.75 per set, and direct labor will average 0.25 per set. Since only one type of roller would be produced, no additional demands would be made on the setup activity. Other overhead activities (besides machining and setups), however, would be affected. The companys cost management system provides the following information about the current status of the overhead activities that would be affected. (The supply and demand figures do not include the effect of roller production on these activities.) The lumpy quantity indicates how much capacity must be purchased should any expansion of activity supply be needed. The purchase price is the cost of acquiring the capacity represented by the lumpy quantity. This price also represents the cost of current spending on existing activity supply (for each block of activity). Production of rollers would place the following demands on the overhead activities: Producing the rollers also means that the purchase of outside rollers will cease. Thus, purchase orders associated with the outside acquisition of rollers will drop by 5,000. Similarly, the moves for the handling of incoming orders will decrease by 200. The company has not inspected the rollers purchased from outside suppliers. Required: 1. Classify all resources associated with the production of rollers as flexible resources and committed resources. Label each committed resource as a short- or long-term commitment. How should we describe the cost behavior of these short- and long-term resource commitments? Explain. 2. Calculate the total annual resource spending (for all activities except for setups) that the company will incur after production of the rollers begins. Break this cost into fixed and variable activity costs. In calculating these figures, assume that the company will spend no more than necessary. What is the effect on resource spending caused by production of the rollers? 3. Refer to Requirement 2. For each activity, break down the cost of activity supplied into the cost of activity output and the cost of unused activity.
Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?
Country Diner currently makes cookies for its boxed lunches. It uses 40,000 cookies annually in the production of the boxed lunches. The costs to make the cookies are: A potential supplier has offered to sell Country Diner the cookies for $0.85 each. If the cookies are purchased, 10% of the fixed overhead could be avoided. If Jason accepts the offer, what will the effect on profit be?
Cullumber Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $126 Direct labor 60 Variable overhead (70% of direct labor) 42 Fixed overhead (30% of direct labor) 18 Manufacturing cost per unit $246 The unassembled bikes are sold to retailers at $406 each. Cullumber has unused productive capacity that is expected to continue indefinitely; management has concluded that some of this capacity could be used to assemble the bikes and sell them at $449 each. Assembling the bikes will increase direct materials by $5 per bike and direct labor by $10 per bike. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the bikes. (a) Prepare an incremental analysis for the sell-or-process-further decision. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any…
Ivanhoe Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows. Direct materials $ 162 Direct labor 70 Variable overhead (70% of direct labor) 49 Fixed overhead (30% of direct labor) 21 Manufacturing cost per unit $ 302 The unassembled bikes are sold to retailers at $ 476 each. Ivanhoe has unused productive capacity that is expected to continue indefinitely; management has concluded that some of this capacity could be used to assemble the bikes and sell them at $ 521 each. Assembling the bikes will increase direct materials by $ 5 per bike and direct labor by $ 10 per bike. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the bikes. Prepare an incremental analysis for the sell-or-process-further decision. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any…
Scootz could sell its scooters to retailers either assembled or unassembled. The cost of an unassembled scooters is as follows. Direct materials $150 Direct labor 70 Variable overhead (0.70 of direct labor) 49 Fixed overhead (0.30 of direct labor) 21 Manufacturing cost per unit $290 The unassembled scooters are sold to retailers at $450 each. Scootz currently has unused productive capacity that is expected to continue indefinitely; management has concluded that some of this capacity can be used to assemble the scooters and sell them at $495 each. Assembling the scooters will increase direct materials by $5 per scooter, and direct labor by $10 per scooter. Additional variable overhead will be incurred at the normal rates, but there will be no additional fixed overhead as a result of assembling the scooters. You are required to: (a) Prepare an incremental analysis for the sell-or-process-further decision. (b) Should Speedy sell unassembled or process further?
Rundle Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,300 containers follows. Unit-level materials. Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rundle for $2.60 each. Required a. Calculate the total relevant cost. Should Rundle continue to make the containers? b. Rundle could lease the space it currently uses in the manufacturing process. If leasing would produce $11,600 per month, calculate the total avoidable costs. Should Rundle continue to make the containers? Answer is complete but not entirely correct. $ a. Total relevant cost a. Should Rundle continue to make the containers? b. Total avoidable cost b. Should Rundle continue to make the containers? 190.650,000 Yes $24,180,000 $ 5,200 6,100 4,000 7,800…
Jordan Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs Allocated facility-level costs $ 5,700 6,800 3,900 8,100 27,200 One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Jordan for $2.90 each. Required a. Calculate the total relevant cost. Should Jordan continue to make the containers? b. Jordan could lease the space it currently uses in the manufacturing process. If leasing would produce $12.300 per rhonth, calculate the total avoidable costs. Should Jordan continue to make the containers? a. Total relevant cost Should Jordan continue to make the containers? b. Total avoidable cost Should Jordan continue to make the containers?