Exploiting Internal Linkages 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 Activity Capacity Current Activity Demand Expected Activity Demand Material usage Number of parts 120,000 120,000 120,000 Installing parts Direct labor hours 82,000 82,000 65,600 Purchasing parts Number of orders 38,800 33,174 20,370 Additionally, the following activity cost data are provided: Material usage: $20 per specialized part used; $13 per commodity part; no fixed activity cost. Installing parts: $15 per direct labor hour; no fixed activity cost. Purchasing parts: Four salaried clerks, each earning a $49,000 annual salary; each clerk is capable of processing 9,700 purchase orders. Variable activity costs: $1.00 per purchase order processed for forms, postage, etc. Required: 1. Calculate the cost reduction produced by using commodity parts instead of specialized parts. Enter your answers as positive amounts. If required, round your answers to the nearest cent. Material usage cost reduction $fill in the blank 1 Labor usage cost reduction fill in the blank 2 Purchasing cost reduction fill in the blank 3 Total savings $fill in the blank 4 2. Suppose that 97,000 units are being produced and sold for $6,600 per unit and that the price per unit will be reduced by the per-unit savings. What is the new price for the configured product? If required, round your intermediate calculations and final answer to the nearest cent. $fill in the blank 5 3. What if the expected activity demand for purchase orders was 16,490? How would this affect the answers to Requirements 1 and 2? If required, round your intermediate calculations and final answers to the nearest cent. Total savings by $fill in the blank 7 to $fill in the blank 8 New price by $fill in the blank 10 to $fill in the blank 11
Exploiting Internal Linkages
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 | Activity Capacity |
Current Activity Demand |
Expected Activity Demand |
| Material usage | Number of parts | 120,000 | 120,000 | 120,000 |
| Installing parts | Direct labor hours | 82,000 | 82,000 | 65,600 |
| Purchasing parts | Number of orders | 38,800 | 33,174 | 20,370 |
Additionally, the following activity cost data are provided:
Material usage: $20 per specialized part used; $13 per commodity part; no fixed activity cost.
Installing parts: $15 per direct labor hour; no fixed activity cost.
Purchasing parts: Four salaried clerks, each earning a $49,000 annual salary; each clerk is capable of processing 9,700 purchase orders. Variable activity costs: $1.00 per purchase order processed for forms, postage, etc.
Required:
1. Calculate the cost reduction produced by using commodity parts instead of specialized parts. Enter your answers as positive amounts. If required, round your answers to the nearest cent.
| Material usage cost reduction | $fill in the blank 1 |
| Labor usage cost reduction | fill in the blank 2 |
| Purchasing cost reduction | fill in the blank 3 |
| Total savings | $fill in the blank 4 |
2. Suppose that 97,000 units are being produced and sold for $6,600 per unit and that the price per unit will be reduced by the per-unit savings. What is the new price for the configured product? If required, round your intermediate calculations and final answer to the nearest cent.
$fill in the blank 5
3. What if the expected activity demand for purchase orders was 16,490? How would this affect the answers to Requirements 1 and 2? If required, round your intermediate calculations and final answers to the nearest cent.
| Total savings | by | $fill in the blank 7 | to | $fill in the blank 8 | |
| New price | by | $fill in the blank 10 | to | $fill in the blank 11 |
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