Finishing Machining Annual capacity 100,000 units 120,000 units Annual production 100,000 units 100,000 units Fixed operating costs (excluding direct materials) Fixed operating costs per unit produced (S600,000 - 100,000; $300,000 ÷ 100,000) $600,000 S300,000 S6 per unit S3 per unit Each cabinet sells for $75 and has direct material costs of $35 incurred at the start of the machining opera- tion. Denver has no other variable costs. Denver can sell whatever output it produces. The following require- ments refer only to the preceding data. There is no connection between the requirements. 1. Denver is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,150 units. The annual cost of these jigs and tools is $35,000. Should Denver acquire these tools? Show your calculations. 2. The production manager of the Machining Department has submitted a proposal to do faster setups that would increase the annual capacity of the Machining Department by 9,000 units and would cost $20,000 per year. Should Denver implement the change? Show your calculations. 3. An outside contractor offers to do the finishing operation for 10,000 units at $9 per unit, triple the $3 per unit that it costs Denver to do the finishing in-house. Should Denver accept the subcontractor's offer? Show your calculations. 4. The Hammond Corporation offers to machine 5,000 units at $3 per unit, half the $6 per unit that it costs Denver to do the machining in-house. Should Denver accept Hammond's offer? Show your calculations. 5. Denver produces 2,000 defective units at the machining operation. What is the cost to Denver of the defective items produced? Explain your answer briefly. 6. Denver produces 2,000 defective units at the finishing operation. What is the cost to Denver of the defective items produced? Explain your answer briefly. Required
Finishing Machining Annual capacity 100,000 units 120,000 units Annual production 100,000 units 100,000 units Fixed operating costs (excluding direct materials) Fixed operating costs per unit produced (S600,000 - 100,000; $300,000 ÷ 100,000) $600,000 S300,000 S6 per unit S3 per unit Each cabinet sells for $75 and has direct material costs of $35 incurred at the start of the machining opera- tion. Denver has no other variable costs. Denver can sell whatever output it produces. The following require- ments refer only to the preceding data. There is no connection between the requirements. 1. Denver is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,150 units. The annual cost of these jigs and tools is $35,000. Should Denver acquire these tools? Show your calculations. 2. The production manager of the Machining Department has submitted a proposal to do faster setups that would increase the annual capacity of the Machining Department by 9,000 units and would cost $20,000 per year. Should Denver implement the change? Show your calculations. 3. An outside contractor offers to do the finishing operation for 10,000 units at $9 per unit, triple the $3 per unit that it costs Denver to do the finishing in-house. Should Denver accept the subcontractor's offer? Show your calculations. 4. The Hammond Corporation offers to machine 5,000 units at $3 per unit, half the $6 per unit that it costs Denver to do the machining in-house. Should Denver accept Hammond's offer? Show your calculations. 5. Denver produces 2,000 defective units at the machining operation. What is the cost to Denver of the defective items produced? Explain your answer briefly. 6. Denver produces 2,000 defective units at the finishing operation. What is the cost to Denver of the defective items produced? Explain your answer briefly. Required
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Theory of constraints, throughput margin, relevant costs. The Denver Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information:
Transcribed Image Text:Finishing
Machining
Annual capacity
100,000 units
120,000 units
Annual production
100,000 units
100,000 units
Fixed operating costs (excluding direct materials)
Fixed operating costs per unit produced
(S600,000 - 100,000; $300,000 ÷ 100,000)
$600,000
S300,000
S6 per unit
S3 per unit
Each cabinet sells for $75 and has direct material costs of $35 incurred at the start of the machining opera-
tion. Denver has no other variable costs. Denver can sell whatever output it produces. The following require-
ments refer only to the preceding data. There is no connection between the requirements.
1. Denver is considering using some modern jigs and tools in the finishing operation that would increase
annual finishing output by 1,150 units. The annual cost of these jigs and tools is $35,000. Should Denver
acquire these tools? Show your calculations.
2. The production manager of the Machining Department has submitted a proposal to do faster setups
that would increase the annual capacity of the Machining Department by 9,000 units and would cost
$20,000 per year. Should Denver implement the change? Show your calculations.
3. An outside contractor offers to do the finishing operation for 10,000 units at $9 per unit, triple the $3 per
unit that it costs Denver to do the finishing in-house. Should Denver accept the subcontractor's offer?
Show your calculations.
4. The Hammond Corporation offers to machine 5,000 units at $3 per unit, half the $6 per unit that it costs
Denver to do the machining in-house. Should Denver accept Hammond's offer? Show your calculations.
5. Denver produces 2,000 defective units at the machining operation. What is the cost to Denver of the
defective items produced? Explain your answer briefly.
6. Denver produces 2,000 defective units at the finishing operation. What is the cost to Denver of the
defective items produced? Explain your answer briefly.
Required
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