Northwind Corporation is a small information-systems consulting firm that specializes in helping companies implement standard sales-management software. The market for Northwind's services is very competitive. To compete successfully, Northwind must deliver quality service at a low cost. Northwind presents the following data for 2011 and 2012. Northwind follows a cost leadership strategy in 2012. 2011 2012 1. Number of jobs billed 70 100 2. Selling price per job $56,000 $50,000 3. Software-implementation labor-hours 35,000 38,000 4. Cost per software-implementation labor-hour $62 $65 5. Software-implementation support capacity (number of jobs it can do) 125 125 6. Total cost of software-implementation support $475,000 $525,000 7. Software-implementation support-capacity cost per job (row 6 / row 5) $3,800 $4,200 Software-implementation labor-hour costs are variable costs. Software-implementation support costs for each year depend on the software-implementation support capacity Northwind chooses to maintain each year (that is, the number of jobs it can do each year). Software-implementation support costs do not vary with the actual number of jobs done that year. REQUIRED 1. Calculate the amount and cost of unused software-implementation support capacity at the beginning of 2012, based on the actual number of jobs actually done in 2012. 2. Suppose Northwind can add or reduce its software-implementation support capacity in increments of 10 units. What is the maximum amount of costs that Northwind could save in 2012 by downsizing software-implementation support capacity? 3. Northwind, in fact, does not eliminate any of its unused software-implementation support capacity. Why might Northwind not downsize?
Northwind Corporation is a small information-systems consulting firm that specializes in helping companies implement standard sales-management software. The market for Northwind's services is very competitive. To compete successfully, Northwind must deliver quality service at a low cost. Northwind presents the following data for 2011 and 2012. Northwind follows a cost leadership strategy in 2012.
|
|
|
2011 |
2012 |
|
1. |
Number of jobs billed |
70 |
100 |
|
2. |
Selling price per job |
$56,000 |
$50,000 |
|
3. |
Software-implementation labor-hours |
35,000 |
38,000 |
|
4. |
Cost per software-implementation labor-hour |
$62 |
$65 |
|
5. |
Software-implementation support capacity (number of jobs it can do) |
125 |
125 |
|
6. |
Total cost of software-implementation support |
$475,000 |
$525,000 |
|
7. |
Software-implementation support-capacity cost per job (row 6 / row 5) |
$3,800 |
$4,200 |
Software-implementation labor-hour costs are variable costs. Software-implementation support costs for each year depend on the software-implementation support capacity Northwind chooses to maintain each year (that is, the number of jobs it can do each year). Software-implementation support costs do not vary with the actual number of jobs done that year.
REQUIRED
|
1. |
Calculate the amount and cost of unused software-implementation support capacity at the beginning of 2012, based on the actual number of jobs actually done in 2012. |
|
2. |
Suppose Northwind can add or reduce its software-implementation support capacity in increments of 10 units. What is the maximum amount of costs that Northwind could save in 2012 by downsizing software-implementation support capacity? |
|
3. |
Northwind, in fact, does not eliminate any of its unused software-implementation support capacity. Why might Northwind not downsize? |
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