Kenneth is the operating manager of Sheffield, a company that manufactures three different types of all-terrain vehicles: four- wheelers, personal watercraft, and snowmobiles. Naturally, Kenneth has the opportunity to test all of these products for quality control purposes. At the end of the year, Kenneth needs to perform a profitability analysis for each product line to better evaluate the company's pricing strategy. He has a gut feeling that the company has room to increase selling prices in the snowmobile category, but he wants to see what the financials look like before he makes a case to the CEO. He has gathered the following information. The costs for the three support departments, Payroll, Maintenance, and IT, are allocated to the product lines according to number of employees, maintenance hours used, and IT hours used, respectively.
Kenneth is the operating manager of Sheffield, a company that manufactures three different types of all-terrain vehicles: four- wheelers, personal watercraft, and snowmobiles. Naturally, Kenneth has the opportunity to test all of these products for quality control purposes. At the end of the year, Kenneth needs to perform a profitability analysis for each product line to better evaluate the company's pricing strategy. He has a gut feeling that the company has room to increase selling prices in the snowmobile category, but he wants to see what the financials look like before he makes a case to the CEO. He has gathered the following information. The costs for the three support departments, Payroll, Maintenance, and IT, are allocated to the product lines according to number of employees, maintenance hours used, and IT hours used, respectively.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Kenneth is the operating manager of Sheffield, a company that manufactures three different types of all-terrain vehicles: four-
wheelers, personal watercraft, and snowmobiles. Naturally, Kenneth has the opportunity to test all of these products for quality
control purposes.
At the end of the year, Kenneth needs to perform a profitability analysis for each product line to better evaluate the company's pricing
strategy. He has a gut feeling that the company has room to increase selling prices in the snowmobile category, but he wants to see
what the financials look like before he makes a case to the CEO. He has gathered the following information. The costs for the three
support departments, Payroll, Maintenance, and IT, are allocated to the product lines according to number of employees, maintenance
hours used, and IT hours used, respectively.
Sales
Four-Wheelers
$1,115,000
Costs
Number of employees
Maintenance hours
IT hours
Personal Watercraft
Payroll
$95,000
2
100
150
$1,407,000
Maintenance.
$114,000
3
200
40
Snowmobiles.
$2.002,000
IT
$248,000
4
150
220
Four-Wheelers Watercraft
$852,000
20
1,800
800
$1,144,000
18
750
1,250
Snowmobiles
$1,755.000
27
1,300
900
Transcribed Image Text:Use Excel to allocate the three support department costs to the three product lines using the reciprocal method. (Round answers to
2 decimal places, eg. 15.25.)
Costs $
4-Wheelers
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Operating Units
Watercraft
Snowmobiles
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