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good efective. (The total fixed costs are the same whether the units produced in the Cutting Department are good or defective.) the good units from the Cutting Department are sent to the Sewing Department. Variable manufacturing costs in the Sewing epartment are $2.80 per unit and fixed manufacturing costs are $52,500 per year. There is no scrap in the Sewing Departm herefore, the company's total sales quantity equals the Cutting Department's good output. The company incurs no other vari osts. The company's designers have discovered a new type of direct material that would reduce scrap in the Cutting Department to units. However, using the new material would increase the direct materials costs to $8.00 per unit in the Cutting Department fa 45,000 units. Recall that only 145,000 units can be started each year. Required: a. Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new mater used. Fixed costs in the sewing department will remain the same whether 123,250 or 137,750 units are produced. b. Should IPort use the new material and improve quality? Complete this question by entering your answers in the tabs below. Required A Required B Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new material is used. Fixed costs in the sewing department will remain the same whether 123,250 or 137.750 units are produ the not mind intnomadist

good efective. (The total fixed costs are the same whether the units produced in the Cutting Department are good or defective.) the good units from the Cutting Department are sent to the Sewing Department. Variable manufacturing costs in the Sewing epartment are $2.80 per unit and fixed manufacturing costs are $52,500 per year. There is no scrap in the Sewing Departm herefore, the company's total sales quantity equals the Cutting Department's good output. The company incurs no other vari osts. The company's designers have discovered a new type of direct material that would reduce scrap in the Cutting Department to units. However, using the new material would increase the direct materials costs to $8.00 per unit in the Cutting Department fa 45,000 units. Recall that only 145,000 units can be started each year. Required: a. Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new mater used. Fixed costs in the sewing department will remain the same whether 123,250 or 137,750 units are produced. b. Should IPort use the new material and improve quality? Complete this question by entering your answers in the tabs below. Required A Required B Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new material is used. Fixed costs in the sewing department will remain the same whether 123,250 or 137.750 units are produ the not mind intnomadist

FINANCIAL ACCOUNTING
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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IPort Products makes cases for portable music players in two processes, cutting and sewing. The cutting process has a capacity of 145,000 units per year; sewing has a capacity of 175,000 units per year. Cost information follows. Inspection and testing costs Scrap costs (all in the cutting dept.) $ 62,500 162,500 Demand is very strong. At a sales price of $18.50 per case, the company can sell whatever output it can produce. IPort Products can start only 145,000 units into production in the Cutting Department because of capacity constraints. Defective units are detected at the end of production in the Cutting Department. At that point, defective units are scrapped. Of the 145,000 units started at the cutting operation, 21,750 units are scrapped. Unit costs in the Cutting Department for both good and defective units equal $13.70 per unit, including an allocation of the total fixed manufacturing costs of $420,500 per year to units. Direct materials (variable) Direct manufacturing, setup, and materials handling labor (variable) Depreciation, rent, and other overhead (fixed) Total unit cost $7.80 3.00 2.90 $13.70 The fixed cost of $2.90 per unit is the allocation of the total fixed costs of the Cutting Department to each unit, whether good or defective. (The total fixed costs are the same whether the units produced in the Cutting Department are good or defective.) The good units from the Cutting Department are sent to the Sewing Department. Variable manufacturing costs in the Sewing Department are $2.80 per unit and fixed manufacturing costs are $52,500 per year. There is no scrap in the Sewing Department. Therefore, the company's total sales quantity equals the Cutting Department's good output. The company incurs no other variable
Transcribed Image Text:IPort Products makes cases for portable music players in two processes, cutting and sewing. The cutting process has a capacity of 145,000 units per year; sewing has a capacity of 175,000 units per year. Cost information follows. Inspection and testing costs Scrap costs (all in the cutting dept.) $ 62,500 162,500 Demand is very strong. At a sales price of $18.50 per case, the company can sell whatever output it can produce. IPort Products can start only 145,000 units into production in the Cutting Department because of capacity constraints. Defective units are detected at the end of production in the Cutting Department. At that point, defective units are scrapped. Of the 145,000 units started at the cutting operation, 21,750 units are scrapped. Unit costs in the Cutting Department for both good and defective units equal $13.70 per unit, including an allocation of the total fixed manufacturing costs of $420,500 per year to units. Direct materials (variable) Direct manufacturing, setup, and materials handling labor (variable) Depreciation, rent, and other overhead (fixed) Total unit cost $7.80 3.00 2.90 $13.70 The fixed cost of $2.90 per unit is the allocation of the total fixed costs of the Cutting Department to each unit, whether good or defective. (The total fixed costs are the same whether the units produced in the Cutting Department are good or defective.) The good units from the Cutting Department are sent to the Sewing Department. Variable manufacturing costs in the Sewing Department are $2.80 per unit and fixed manufacturing costs are $52,500 per year. There is no scrap in the Sewing Department. Therefore, the company's total sales quantity equals the Cutting Department's good output. The company incurs no other variable
The fixed cost of $2.90 per unit is the allocation of the total fixed costs of the Cutting Department to each unit, whether good or defective. (The total fixed costs are the same whether the units produced in the Cutting Department are good or defective.) The good units from the Cutting Department are sent to the Sewing Department. Variable manufacturing costs in the Sewing Department are $2.80 per unit and fixed manufacturing costs are $52,500 per year. There is no scrap in the Sewing Department. Therefore, the company's total sales quantity equals the Cutting Department's good output. The company incurs no other variable costs. The company's designers have discovered a new type of direct material that would reduce scrap in the Cutting Department to 7,25 units. However, using the new material would increase the direct materials costs to $8.00 per unit in the Cutting Department for all 145,000 units. Recall that only 145,000 units can be started each year. Required: a. Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new material i used. Fixed costs in the sewing department will remain the same whether 123,250 or 137,750 units are produced. b. Should IPort use the new material and improve quality? Complete this question by entering your answers in the tabs below. Required A Required B Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new material is used. Fixed costs in the sewing department will remain the same whether 123,250 or 137,750 units are produced. Do not und intermediato sledstione Dond "Drien norinit" to I decimal alan)
Transcribed Image Text:The fixed cost of $2.90 per unit is the allocation of the total fixed costs of the Cutting Department to each unit, whether good or defective. (The total fixed costs are the same whether the units produced in the Cutting Department are good or defective.) The good units from the Cutting Department are sent to the Sewing Department. Variable manufacturing costs in the Sewing Department are $2.80 per unit and fixed manufacturing costs are $52,500 per year. There is no scrap in the Sewing Department. Therefore, the company's total sales quantity equals the Cutting Department's good output. The company incurs no other variable costs. The company's designers have discovered a new type of direct material that would reduce scrap in the Cutting Department to 7,25 units. However, using the new material would increase the direct materials costs to $8.00 per unit in the Cutting Department for all 145,000 units. Recall that only 145,000 units can be started each year. Required: a. Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new material i used. Fixed costs in the sewing department will remain the same whether 123,250 or 137,750 units are produced. b. Should IPort use the new material and improve quality? Complete this question by entering your answers in the tabs below. Required A Required B Compute profit under each alternative. Assume that inspection and testing costs will be reduced by $23,500 if the new material is used. Fixed costs in the sewing department will remain the same whether 123,250 or 137,750 units are produced. Do not und intermediato sledstione Dond "Drien norinit" to I decimal alan)
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