Richard is the operating manager of Sheridan, a company that manufactures three different types of all-terrain vehicles: four- wheelers, personal watercraft, and snowmobiles. Naturally, Richard has the opportunity to test all of these products for quality- control purposes. At the end of the year, Richard 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 Costs Four-Wheelers IT hours $1,132,000 Number of employees Maintenance hours Personal Watercraft Payroll $94,000 2 100 150 $1,399,000 Maintenance $116,000 3 200 40 Snowmobiles $1,988,000 IT $248,000 4 150 220 Four-Wheelers Watercraft $843,000 $1,143,000 20 1,800 800 18 750 1,250 Snowmobiles $1,742,000 27 1,300 900

Richard is the operating manager of Sheridan, a company that manufactures three different types of all-terrain vehicles: four- wheelers, personal watercraft, and snowmobiles. Naturally, Richard has the opportunity to test all of these products for quality- control purposes. At the end of the year, Richard 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 Costs Four-Wheelers IT hours $1,132,000 Number of employees Maintenance hours Personal Watercraft Payroll $94,000 2 100 150 $1,399,000 Maintenance $116,000 3 200 40 Snowmobiles $1,988,000 IT $248,000 4 150 220 Four-Wheelers Watercraft $843,000 $1,143,000 20 1,800 800 18 750 1,250 Snowmobiles $1,742,000 27 1,300 900

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 32P

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