RelyaTech Corporation manufactures a number of products at its highly automated factory. The products are very popular, with demand far exceeding the factory's capacity. To maximize profit, management should rank products based on their selling price gross margin contribution margin per unit of the constrained resource contribution margin
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- An operations manager is deciding on the level of automation for a new process. The fixed cost for automation includes the equipment purchase price, installation, and initial spare parts. The variable costs per unit for each level of automation are primarily labor related. Each unit can be sold for $81. As in many cases, you have the default alternative of doing nothing ($0 fixed cost, $0 variable costs). Hint: For these questions, also consider the “Do Nothing” option as a viable option when making your decision. Alternative Fixed Costs Variable Costs per Unit A $100,000 $54 B $272,000 $31 C $560,000 $20 Recommended: graph each alternative with units on the x-axis and $ on the y-axis. Also, include revenue on the chart. Identify the break-even points and points of indifference.Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,237,000 based on production of 290,000 handheld consoles and 100,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home Total Direct labor $ 1,135,250 $ 411,000 $ 1,546,250 Materials 700,000 671,000 1,371,000…The managerial accountant at Fast and Mean Manufacturing reported that the organization contains an automated production line to manufacture and produce its products for consumers to enjoy in the marketplace. The managerial accountant reported that the company uses the high-low method to estimate the costs in the new budget. The managerial accountant reported the following information: Compute the slope of the mixed cost, or the variable cost per unit of activity. Compute the vertical intercept, or the fixed cost component of the mixed cost. What is the mixed cost equation? Month Total machine hours total cost January 250,000 $5,500,000 February 248,000 $5,260,000 March 249,000 $5,400,000 April 248,000 $5,220,000 May 238,000 $5,180,000 June 230,000 $5,130,000
- Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two,peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewerjars per case. Data concerning the two products follow: Annual overhead costs are listed below. These costs are classified as fixed or variable with respect to the appropriate activity driver. Required:1. Prepare a traditional segmented income statement, using a unit-level overhead rate based ondirect labor hours. Using this approach, determine whether the cashew butter product lineshould be kept or dropped.2. Prepare an activity-based segmented income statement. Repeat the keep-or-drop analysisusing an ABC approach.Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow: Capacity (units) Sales price Variable costsb Fixed costs a For Production, this is the price to third parties. b For Packaging, this does not include the transfer price paid to Production. Suppose Production is located in Country A with a tax rate of 30 percent and Distribution in Country B with a tax rate of 10 percent. All other facts remain the same. a. Optimal transfer price b. Transfer price c Transfer price Required: a. Current output in Production is 25,300 units. Packaging requests an additional 5,960 units to produce a special order. What transfer price would you recommend? to search b. Suppose Production is operating at full capacity. What transfer price would you…Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $2,037,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Personal Commercial Total Direct materials $ 1,445,000 $ 620,000 $ 2,065,000 Direct labor 1,030,000 667,500 1,697,500 Management has determined that overhead costs are caused by three cost…
- A newly formed company must decide on a plant location. There are two alternatives under consideration: locate near the major raw materials or locate near the major customers. Locating near the raw materials will result in lower fixed and variable costs than locating near the market, but the owners believe that there would be a loss in sales volume because customers tend to favour local suppliers. Revenue per unit will be $160 in either case. Annual fixed costs ($ millions) Variable cost per unit Expected annual demand (units) Near raw materials Near customers 1. Using the above given information, determine the profits for each alternative. (Negative answers should be indicated by a minus sign.) 64 2. Which location would produce greater profit? O Near raw materials O Near customers Near Raw Materials $0.90 $ 40 8,600 Near Customers $1.00 $ 45 13,300The Chopin Company has decided to introduce a new product. The new product can be manufactured by either a computer-assisted manufacturing (CAM) or a labor-intensive production (LIP) system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs for each of the two methods are as follows. CAM System: Direct Material = $5.0 Direct Labor (DLH) = 0.5 DLH X $12 = $6 Variable Overhead = 0.5DLHx$6 = $3 Fixed Iverhead* = $ 2,440,000 LIP System: Direct Material = $5.6 Direct Labor (DLH) = 0.8 DLH X $9 = $7.2 Variable Overhead = 0.8 DLH X $6 = $4.8 Fixed Overhead* = $1,320,000 *These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company’s marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: Calculate the estimated…Chocolate Bars, Inc. (CBI), manufactures creamy deluxe chocolate candy bars. The firm has developed three distinct products: Almond Dream, Krispy Krackle, and Creamy Crunch. CBI is profitable, but management is quite concerned about the profitability of each product and the product costing methods currently employed. In particular, management questions whether the overhead allocation base of direct labor-hours accurately reflects the costs incurred during the production process of each product. Skipped In reviewing cost reports with the marketing manager, Steve Hoffman, who is the cost accountant, notices that Creamy Crunch appears exceptionally profitable and that Almond Dream appears to be produced at a loss. This surprises both him and the manager, and after much discussion, they are convinced that the cost accounting system is at fault and that Almond Dream is performing very well at the current market price. Steve decides to hire Jean Sharpe, a management consultant, to study the…