Upstate Mechanical, Inc., has been producing two bearings, components T79 and B81, for use in production. Data regarding these two components follow. Machine hours required per unit Standard cost per unit: Direct material Direct labor Manufacturing overhead Variable* Fixed Total T79 B81 2.5 3.0 $ 2.25 $ 3.75 4.00 4.50 2.00 2.25 3.75 4.50 $12.00 $15.00 *Variable manufacturing overhead is applied on the basis of direct-labor hours. *Fixed manufacturing overhead is applied on the basis of machine hours. Upstate Mechanical's annual requirement for these components is 8,000 units of T79 and 11,000 units of B81. Recently, management decided to devote additional machine time to other product lines, leaving only 41,000 machine hours per year for producing the bearings. An outside company has offered to sell Upstate Mechanical its annual supply of bearings at prices of $11.25 for T79 and $13.50 for B81. Management wants to schedule the otherwise idle 41,000 machine hours to produce bearings so that the firm can minimize costs (maximize net benefits). 3. Suppose management has decided to drop product T79. Independently of requirements 1 and 2, assume that the company's idle capacity of 41,000 machine hours has a traceable, avoidable annual fixed cost of $44,000, which will be incurred only if the capacity is used. Calculate the maximum price Upstate Mechanical should pay a supplier for component B81. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Maximum price
Upstate Mechanical, Inc., has been producing two bearings, components T79 and B81, for use in production. Data regarding these two components follow. Machine hours required per unit Standard cost per unit: Direct material Direct labor Manufacturing overhead Variable* Fixed Total T79 B81 2.5 3.0 $ 2.25 $ 3.75 4.00 4.50 2.00 2.25 3.75 4.50 $12.00 $15.00 *Variable manufacturing overhead is applied on the basis of direct-labor hours. *Fixed manufacturing overhead is applied on the basis of machine hours. Upstate Mechanical's annual requirement for these components is 8,000 units of T79 and 11,000 units of B81. Recently, management decided to devote additional machine time to other product lines, leaving only 41,000 machine hours per year for producing the bearings. An outside company has offered to sell Upstate Mechanical its annual supply of bearings at prices of $11.25 for T79 and $13.50 for B81. Management wants to schedule the otherwise idle 41,000 machine hours to produce bearings so that the firm can minimize costs (maximize net benefits). 3. Suppose management has decided to drop product T79. Independently of requirements 1 and 2, assume that the company's idle capacity of 41,000 machine hours has a traceable, avoidable annual fixed cost of $44,000, which will be incurred only if the capacity is used. Calculate the maximum price Upstate Mechanical should pay a supplier for component B81. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Maximum price
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Upstate Mechanical, Inc., has been producing two bearings, components T79 and B81, for use in
production. Data regarding these two components follow.
Machine hours required per unit
Standard cost per unit:
Direct material
Direct labor
Manufacturing overhead
Variable*
Fixed
Total
T79
B81
2.5
3.0
$ 2.25
$ 3.75
4.00
4.50
2.00
2.25
3.75
4.50
$12.00
$15.00
*Variable manufacturing overhead is applied on the basis of direct-labor hours.
*Fixed manufacturing overhead is applied on the basis of machine hours.
Upstate Mechanical's annual requirement for these components is 8,000 units of T79 and 11,000 units
of B81. Recently, management decided to devote additional machine time to other product lines, leaving
only 41,000 machine hours per year for producing the bearings. An outside company has offered to sell
Upstate Mechanical its annual supply of bearings at prices of $11.25 for T79 and $13.50 for B81.
Management wants to schedule the otherwise idle 41,000 machine hours to produce bearings so that
the firm can minimize costs (maximize net benefits).
3. Suppose management has decided to drop product T79. Independently of requirements 1 and 2, assume that the
company's idle capacity of 41,000 machine hours has a traceable, avoidable annual fixed cost of $44,000, which will be
incurred only if the capacity is used. Calculate the maximum price Upstate Mechanical should pay a supplier for
component B81. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Maximum price
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