Cost of qualityEljah Electronics makes wireless headphone sets. The firm produced 67,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold63,450 units through regular market channels, but 675 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For theyear, the firm spent $360,000 on prevention costs and $180,000 on quality appraisal. There were no customer returns. An income statement for the year followsSalesRegular channelSecondsScrapCost of goods sold$12.690,000320625Original production costsRework costsQuality prevention and appraisal23.625 $13,034.250$4,314.60094,500540.000 $44100Gross margin$8.085.150Seling and administrative expenses (all fixed)2205,000Profit before income taxes$5.500,150a Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $b. Compute the total failure cost for the company in its first year. Sc Compute total quality cost incurred by the company in its first year. S

Cost of quality Eljah Electronics makes wireless headphone sets. The firm produced 67,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah solo 63,450 units through regular market channels, but 675 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $360,000 on prevention costs and $180,000 on quality appraisal. There were no customer returns. An income statement for the year follows Sales Regular channel Seconds Scrap Cost of goods sold Original production costs work costs Quality prevention and appraisal $12.690,000 320625 23.625 $13,034.250 Gross margin Seling and administrative expenses (all fixed) 14314600 94,500 540.000 $4449100 $8.085.150 2,205,000 $5.500,150 Profit before income taxes a Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $ b. Compute the total failure cost for the company in its first year. S cCompute total quality cost incurred by the company in its first year. S

Cost of quality Eljah Electronics makes wireless headphone sets. The firm produced 67,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah solo 63,450 units through regular market channels, but 675 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $360,000 on prevention costs and $180,000 on quality appraisal. There were no customer returns. An income statement for the year follows Sales Regular channel Seconds Scrap Cost of goods sold Original production costs work costs Quality prevention and appraisal $12.690,000 320625 23.625 $13,034.250 Gross margin Seling and administrative expenses (all fixed) 14314600 94,500 540.000 $4449100 $8.085.150 2,205,000 $5.500,150 Profit before income taxes a Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $ b. Compute the total failure cost for the company in its first year. S cCompute total quality cost incurred by the company in its first year. S

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 7E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...

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One of the tennis rackets that Ace Sporting Goods manufactures is a titanium model (Slam) that sells for 149. The cost of each Slam consists of: Job 100 produced 100 Slams, of which six were spoiled and classified as seconds. Seconds are sold to discount stores for 50 each. Required: 1. Under the assumption that the loss from spoilage will be distributed to all jobs produced during the current period, use general journal entries to (a) record the costs of production, (b) put spoiled goods into inventory, and (c) record the cash sale of spoiled units. 2. Under the assumption that the loss due to spoilage will be charged to Job 100, use general journal entries to (a) record the costs of production, (b) put spoiled goods into inventory, and (c) record the cash sale of spoiled units.
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the economic order quantity. 2. Compute the ordering, carrying, and total costs for the EOQ. 3. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?
ZZOOM, Inc., has decided to discontinue manufacturing its Z Best model. Currently, the company has 4,600 partially completed Z Best models on hand. The government has put a recall on a particular part in the Z Best model, so each base model must now be reworked to accommodate the style of the new part. The company has spent $110 per unit to manufacture these Z Best models to their current state. Reworking each Z Best model will cost $22 for materials and $25 for direct labor. In addition, $9 of variable overhead and $34 of allocated fixed overhead (relating primarily to depreciation of plant and equipment) will be allocated per unit. If ZZOOM completes the Z Best models, it can sell them for $180 per unit. On the other hand, another manufacturer is interested in purchasing the partially completed units for $105 each and converting them into Z Plus models. Prepare a differential analysis per unit to determine if ZZOOM should complete the Z Best models or sell them in their current state.
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)
Cost of qualityElijah Electronics makes wireless headphone sets. The firm produced 58,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 54,990 units through regular market channels, but 585 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $312,000 on prevention costs and $156,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $10,998,000 Seconds 277,875 Scrap 20,475 $11,296,350 Cost of goods sold Original production costs $3,739,320 Rework costs 81,900 Quality prevention and appraisal 468,000 $4,289,220 Gross margin $7,007,130 Selling and administrative expenses (all fixed) 1,911,000 Profit before income taxes $5,096,130 a. Compute the total pre-tax profit lost by the company in…
Cost of qualityElijah Electronics makes wireless headphone sets. The firm produced 76,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 71,910 units through regular market channels, but 765 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $408,000 on prevention costs and $204,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $14,382,000 Seconds 363,375 Scrap 26,775 $14,772,150 Cost of goods sold Original production costs $4,889,880 Rework costs 107,100 Quality prevention and appraisal 612,000 $5,608,980 Gross margin $9,163,170 Selling and administrative expenses (all fixed) 2,499,000 Profit before income taxes $6,664,170 a. Compute the total pre-tax profit lost by the company in…
Elijah Electronics makes wireless headphone sets. The firm produced 58,500 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 54,990 units through regular market channels, but 585 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $312,000 on prevention costs and $156,000 on quality appraisal. There were no customer returns. An income statement for the year follows. (See attached) a. Compute the total pre-tax profit lost by the company in its first year of operations by selling defective units as seconds or as scrap rather than selling the units through regular channels. $______ b. Compute the total failure cost for the company in its first year. $______ c. Compute total quality cost incurred by the company in its first year. $______
Elijah Electronics makes wireless headphone sets. The firm produced 27,000 wireless headphone sets during its first year of operation. At year-end, it had no inventory of finished goods. Elijah sold 25,380 units through regular market channels, but 270 of the units produced were so defective that they had to be sold as scrap. The remaining units were reworked and sold as seconds. For the year, the firm spent $144,000 on prevention costs and $72,000 on quality appraisal. There were no customer returns. An income statement for the year follows. Sales Regular channel $5,076,000 Seconds 128,250 Scrap 9,450 $5,213,700 Cost of goods sold Original production costs $1,725,840 Rework costs 37,800 Quality prevention and appraisal 216,000 $1,979,640 Gross margin $3,234,060 Selling and administrative expenses (all fixed) 882,000 Profit before income taxes $2,352,060 Compute the total pre-tax…
Hawkins Audio Video, Inc. manufactures digital cameras. Hawkins is considering whether it should outsource production of a part used in the manufacturing of its cameras. 60,000 units of the part were made by Hawkins last year. At this production level, the company incurred the following direct product costs: Direct Materials $250,000 Direct Labor $104,000 Manufacturing Overhead incurred during the same period for production of the part is represented by the following cost behavior equation: y = $0.10x + $50,000. If the part were purchased from an outside supplier, 80% of the total fixed manufacturing overhead cost would continue, and the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional income from this other product would be $12,600 per year. A supplier has been identified who can sell the part to Hawkins at a price of $7.80 per unit. Which of…
WorldSystems manufactures an optical switch that it uses in its final product. WorldSystems incurred the following manufacturing costs when it produced 72,000 units last year: WorldSystems does not yet know how many switches it will need this year; however, another company has offered to sell WorldSystems $11.50 per unit. If WorldSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used fe purpose, yet none of the fixed costs are avoidable. E (Click the icon to view the manufacturing costs.) Read the reguirements. Requirement 1. Given the same cost structure, should WorldSystems make or buy the switch? Show your analysis. Complete an incremental analysis to show whether WorldSystems should make or buy the switch. (Enter a "0" for any zero amounts. Round amounts to the nearest cent. Use a minus sign or parentheses when the cost to buy exceeds the cost to make.) World Systems Incremental Analysis for Outsourcing Decision - X Make Buy…
InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred the following manufacturing costs when it produced 70,000 units last year as shown in the chart below: InteliSystems does not yet know how many switches it will need this year; however, another company has offered to sell InteliSystems the switch for $8.50 per unit. If InteliSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used for any other purpose; yet none of the fixed costs are avoidable. Requirements 1. Given the same cost structure, should InteliSystems make or buy the switch? Show your analysis. 2. Now, assume that InteliSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, InteliSystems needs 75,000 switches a year rather than 70,000 switches. What should the company do now? 3. Given the last scenario, what is the most InteliSystems would be willing to…
InteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred the following manufacturing costs when it produced 70,000 units last year as shown in the chart below: InteliSystems does not yet know how many switches it will need this year; however, another company has offered to sell InteliSystems the switch for $8.50 per unit. If InteliSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used for any other purpose; yet none of the fixed costs are avoidable. Requirements 1. Given the same cost structure, should InteliSystems make or buy the switch? Show your analysis. 2. Now, assume that InteliSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, InteliSystems needs 75,000 switches a year rather than 70,000 switches. What should the company do now? 3. Given the last scenario, what is the most InteliSystems would be willing to…