Waterways Corporation mass-produces a simple water control and timer set. To produce these units, the company incurred variable expenses of $2,053,200 and fixed expenses of $683.338. During 2022, it sold 696,000 units at an average selling price of $4.22 per unit. This was the combination of selling 346,000 units on the market for $5.50 each, and transferring 350,000 units to the installation divisions at variable cost. Top management had directed the use of this transfer price. Capacity for this unit was 736,000 units. Recently, Ryan Smith, the plant manager, was approached by a new customer who offered to pay $5-55 per unit for 60,000 units. Ryan, thinking about his bonus that was based on the department's operatin income, readily accepted the order. Now he had to break the news to Lee Williams, the service vice-president in charge of installations. In order to fill the new order, Ryan would have to reduce the installati division's quota by 20,000 units because he was not prepared to give up the margin he would receive from the outside sales. He suggested that Lee could purchase what he needed in the outside market. Instructions a. Suppose Ryan accepts the order. Determine what the impact would be on: 1. the plant, 2. the installation division, and 3. the company as a whole.
Waterways Corporation mass-produces a simple water control and timer set. To produce these units, the company incurred variable expenses of $2,053,200 and fixed expenses of $683.338. During 2022, it sold 696,000 units at an average selling price of $4.22 per unit. This was the combination of selling 346,000 units on the market for $5.50 each, and transferring 350,000 units to the installation divisions at variable cost. Top management had directed the use of this transfer price. Capacity for this unit was 736,000 units. Recently, Ryan Smith, the plant manager, was approached by a new customer who offered to pay $5-55 per unit for 60,000 units. Ryan, thinking about his bonus that was based on the department's operatin income, readily accepted the order. Now he had to break the news to Lee Williams, the service vice-president in charge of installations. In order to fill the new order, Ryan would have to reduce the installati division's quota by 20,000 units because he was not prepared to give up the margin he would receive from the outside sales. He suggested that Lee could purchase what he needed in the outside market. Instructions a. Suppose Ryan accepts the order. Determine what the impact would be on: 1. the plant, 2. the installation division, and 3. the company as a whole.
Chapter1: Financial Statements And Business Decisions
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Waterways Corporation mass-produces a simple water control and timer set. To produce these units, the company incurred variable expenses of $2,053,200 and fixed expenses of $683,338.
During 2022, it sold 696,000 units at an average selling price of $4.22 per unit. This was the combination of selling 346,000 units on the market for $5.50 each, and transferring 350,000 units to the
installation divisions at variable cost. Top management had directed the use of this transfer price. Capacity for this unit was 736,000 units.
Recently, Ryan Smith, the plant manager, was approached by a new customer who offered to pay $5.55 per unit for 60,000 units. Ryan, thinking about his bonus that was based on the department's operating
income, readily accepted the order. Now he had to break the news to Lee Williams, the service vice-president in charge of installations. In order to fill the new order, Ryan would have to reduce the installation
division's quota by 20,000 units because he was not prepared to give up the margin he would receive from the outside sales. He suggested that Lee could purchase what he needed in the outside market.
Instructions
a. Suppose Ryan accepts the order. Determine what the impact would be on:
1. the plant,
2. the installation division, and
3. the company as a whole.
b. What do you think would be the best course of action in this situation? Explain.
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