Manufacturing cycle times, relevant revenues, and relevant costs. The DJ Corporation makes custom specified wire harnesses for the trucking industry only upon receiving firm orders from its custom- ers. DJ has recently purchased a new machine to make two types of wire harnesses, one for Peterbilt and the other for Kenworth. The annual capacity of the new machine is 5,000 hours. The following information is available for next year: Selling Price per Order If Average Manufacturing Cycle Time per Order Is Less Than Inventory Carrying Annual Average Number of Variable Cost per Order per Hour Manufacturing Time Required 40 hours 50 hours More Than Cost per Order Customer 200 Hours 200 Hours Orders 100 10 $14,000 12,500 $13,400 11,960 $9,000 8,000 Peterbilt $0.50 Kenworth 0.45

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Even though Kenworth has a positive contribution margin, DJ’s managers are evaluating whether DJ should (a) make and sell only Peterbilt or (b) make and sell both Peterbilt and Kenworth. Which alternative will maximize DJ’s operating income? Show your calculations.

Manufacturing cycle times, relevant revenues, and relevant costs. The DJ Corporation makes
custom specified wire harnesses for the trucking industry only upon receiving firm orders from its custom-
ers. DJ has recently purchased a new machine to make two types of wire harnesses, one for Peterbilt and
the other for Kenworth. The annual capacity of the new machine is 5,000 hours. The following information is
available for next year:
Selling Price per Order If
Average Manufacturing
Cycle Time per Order Is
Less Than
Inventory
Carrying
Annual
Average
Number of
Variable
Cost
per Order
per Hour
Manufacturing
Time Required
40 hours
50 hours
More Than
Cost per
Order
Customer
200 Hours
200 Hours
Orders
100
10
$14,000
12,500
$13,400
11,960
$9,000
8,000
Peterbilt
$0.50
Kenworth
0.45
Transcribed Image Text:Manufacturing cycle times, relevant revenues, and relevant costs. The DJ Corporation makes custom specified wire harnesses for the trucking industry only upon receiving firm orders from its custom- ers. DJ has recently purchased a new machine to make two types of wire harnesses, one for Peterbilt and the other for Kenworth. The annual capacity of the new machine is 5,000 hours. The following information is available for next year: Selling Price per Order If Average Manufacturing Cycle Time per Order Is Less Than Inventory Carrying Annual Average Number of Variable Cost per Order per Hour Manufacturing Time Required 40 hours 50 hours More Than Cost per Order Customer 200 Hours 200 Hours Orders 100 10 $14,000 12,500 $13,400 11,960 $9,000 8,000 Peterbilt $0.50 Kenworth 0.45
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