Analyzing Profitability Considering a Scarce ResourceAssume that Innovative Components Inc. produces only three different types of injection-molded knobs. It produces the Pointer Knob, which is used for on/off devices, the Instrument Knob,which is used for precision adjustment, and the Star Knob, which is used for snowblowers and lawnmowers. The factory machine capacity is the company's constraining resource. It operatesat 90% capacity and management wants to devote the unused capacity to one of the products. The following data represents the current operations.Per-case dataSales priceVariable costPointer Knob Instrument Knob Star Knob$20.008.00$32.00$6.0026.002.00Contribution margin12.006.004.00Fixed costs*6.002.001.00Net income$6.00$4.00$3.00*Allocated on basis of machine hours at $2 per machine hour.REQUIREDPointer Knob Instrument Knob Star KnobContribution margin per machine hour: $$$Which product should management produce with its extra capacity?ZO PTS

Analyzing profitability considering a scarce resource, such as machine capacity, is crucial for…

Answered: Analyzing Profitability Considering a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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An automated turning machine is the current constraint at Jordison Corporation. Three products use this constrained resource. Data concerning those products appear below: LN JQ RQ Selling price per unit $ 167.36 $ 303.39 $ 411.96 Variable cost per unit $ 136.00 $ 212.11 5 303.18 Minutes on the constraint 1.60 5.60 7.40 Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized. (Round your intermediate calculations to 2 decimal places)
Subject: acounting
Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $158,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $235 $429 $149 Unit variable cost 185 351 131 Unit contribution margin $ 50 $ 78 $ 18 Autoclave hours per unit 4 6 2 Total process hours per unit 8 12 6 Budgeted units of production 2,400 2,400 2,400 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units…
Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $296,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $324 $286 $158 Unit variable cost 255 234 139 Unit contribution margin $ 69 $ 52 $ 19 Autoclave hours per unit 6 4 2 Total process hours per unit 18 8 6 Budgeted units of production 4,700 4,700 4,700 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units…
A manufacturing company decides which of three mutually exclusive products to make in its factory on the basis of maximising the company's throughput accounting ratio. Current data for the three products is shown in the following table: Product X Product Y Product Z $20 Selling price per unit $60 $40 Direct material cost per unit $40 $10 $16 Machine hours per unit 10 20 2.5 Total factory costs (excluding direct materials) are $150,000. The company cannot make enough of any of the products to satisfy external demand entirely as machine hours are restricted. Which of the following actions would improve the company's existing throughput accounting ratio? Increase the selling price of product Z by 10% Increase the selling price of product Y by 10% Reduce the material cost of product Z by 5% O Reduce the material cost of product Y by 5%
Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $177,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $353 $99 $282 Unit variable cost 278 81 248 Unit contribution margin $ 75 $ 18 $ 34 Autoclave hours per unit 6 2 4 Total process hours per unit 18 6 8 Budgeted units of production 3,100 3,100 3,100 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units…
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's products appears below: Selling price per unit Variable cost per unit Upholstery labor-hours per unit Required: Recliner Sofa Love Seat $ 1,254 $ 750 $ 2,065 $ 1,250 $ 1,350 $ 900 9 hours 13 hours 5 hours 1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime rate per hour should the company be willing to pay to keep the upholstery shop open after normal working hours? 2. A small nearby upholstering company has offered to upholster furniture for Portsmouth at a price of $50 per hour. The management of Portsmouth is…
Woodruff Company is currently producing a snowmobile that uses five specialized parts. Engineering has proposed replacing these specialized parts with commodity parts, which will cost less and can be purchased in larger order quantities. Current activity capacity and demand (with specialized parts required) and expected activity demand (with only commodity parts required) are provided. Activities Activity Driver ActivityCapacity Current ActivityDemand Expected ActivityDemand Material usage Number of parts 200,000 200,000 200,000 Installing parts Direct labor hours 20,000 20,000 16,000 Purchasing parts Number of orders 7,600 6,498 3,990 Additionally, the following activity cost data are provided: Material usage: $11 per specialized part used; $27 per commodity part; no fixed activity cost. Installing parts: $21 per direct labor hour; no fixed activity cost. Purchasing parts: Four salaried clerks, each earning a $47,000 annual salary; each clerk is capable of processing 1,900…
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