Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Chapter 19, Problem 19.31P
Quality improvement, relevant costs, and relevant revenues. The Tristan Corporation sells 250,000 V262 valves to the automobile and truck industry. Tristan has a capacity of 150,000 machine-hours and can produce two valves per machine-hour. V262’s contribution margin per unit is $7. Tristan sells only 250,000 valves because 50,000 valves (20% of the good valves) need to be reworked. It takes 1 machine-hour to rework two valves, so 25,000 hours of capacity are used in the rework process. Tristan’s rework costs are $550,000. Rework costs consist of the following:
- Direct materials and direct rework labor (variable costs): $5 per unit
- Fixed costs of equipment, rent, and
overhead allocation: $6 per unit
Tristan’s process designers have developed a modification that would maintain the speed of the process and ensure 100% quality and no rework. The new
- The demand for Tristan’s V262 valves is 400,000 per year.
- The Colton Corporation has asked Tristan to supply 27,000 T971 valves (another product) if Tristan implements the new design. The contribution margin per T971 valve is $12. Tristan can make one T971 valve per machine-hour with 100% quality and no rework.
- 1. Suppose Tristan’s designers implement the new design. Should Tristan accept Colton’s order for 27,000 T971 valves? Show your calculations.
Required
- 2. Should Tristan implement the new design? Show your calculations.
- 3. What nonfinancial and qualitative factors should Tristan consider in deciding whether to implement the new design?
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Quality improvement, relevant costs, and relevant revenues. The Tristan Corporation sells 250,000 V262 valves to theautomobile and truck industry. Tristan has a capacity of 150,000 machine-hours and can produce two valves per machinehour. V262’s contribution margin per unit is $7. Tristan sells only 250,000 valves because 50,000 valves (20% of the goodvalves) need to be reworked. It takes 1 machine-hour to rework two valves, so 25,000 hours of capacity are used in therework process. Tristan’s rework costs are $550,000. Rework costs consist of the following:
Direct materials and direct rework labor (variable costs): $5 per unit
Fixed costs of equipment, rent, and overhead allocation: $6 per unit
Tristan’s process designers have developed a modication that would maintain the speed of the process and
ensure 100% quality and no rework. The new process would cost $538,000 per year. The following additional informationis available:
The demand for Tristan’s V262 valves is 400,000 per year.…
The Tristan Corporation sells 250,000 V262 valves to the automobile and truck industry. Tristan has a capacity of 150,000 machine-hours and can produce two valves per machine-hour. V262’s contribution margin per unit is $7. Tristan sells only 250,000 valves because 50,000 valves (20% of the good valves) need to be reworked. It takes 1 machine-hour to rework two valves, so 25,000 hours of capacity are used in the rework process. Tristan’s rework costs are $550,000. Rework costs consist of the following:
■ Direct materials and direct rework labor (variable costs): $5 per unit
■ Fixed costs of equipment, rent, and overhead allocation: $6 per unit
Tristan’s process designers have developed a modification that would maintain the speed of the process and ensure 100% quality and no rework. The new process would cost $538,000 per year. The following additional information is available:
■ The demand for Tristan’s V262 valves is 400,000 per year.
■ The Colton Corporation has asked Tristan to…
Perry, Inc. manufactures metal stampings for automobiles: stick shifts and trim kits. Fixed costs are $146,000. Each stick shift sells for $10 and has variable costs of $8; each trim kit sells for $9 and has variable costs of $5.
What are the contribution margins per unit and contribution ratios for door handles and trim kits?
If Perry sells 30,000 stick shifts and 45,000 trim kits, what is operating income?
How many stick shifts and trim kits must be sold for Perry to break even?
Chapter 19 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 19 - Describe two benefits of improving quality.Ch. 19 - Prob. 19.2QCh. 19 - Name two items classified as prevention costs.Ch. 19 - Give two examples of appraisal costs.Ch. 19 - Distinguish between internal failure costs and...Ch. 19 - Describe three methods that companies use to...Ch. 19 - Companies should focus on financial measures of...Ch. 19 - Give two examples of nonfinancial measures of...Ch. 19 - Give two examples of nonfinancial measures of...Ch. 19 - When evaluating alternative ways to improve...
Ch. 19 - Distinguish between customer-response time and...Ch. 19 - Prob. 19.12QCh. 19 - Give two reasons why delays occur.Ch. 19 - Companies should always make and sell all products...Ch. 19 - Prob. 19.15QCh. 19 - Rector Corporation is examining its quality...Ch. 19 - Six Sigma is a continuous quality improvement...Ch. 19 - Costs of quality. (CMA, adapted) Osborn, Inc.,...Ch. 19 - Costs of quality analysis. Adirondack Company...Ch. 19 - Costs-of-quality analysis. Safe Travel produces...Ch. 19 - Costs of quality, quality improvement. iCover...Ch. 19 - Prob. 19.22ECh. 19 - Prob. 19.23ECh. 19 - Waiting time. Its a Dogs World (IDW) makes toys...Ch. 19 - Waiting time, service industry. The registration...Ch. 19 - Waiting time, cost considerations, customer...Ch. 19 - Nonfinancial measures of quality and time. For the...Ch. 19 - Nonfinancial measures of quality, manufacturing...Ch. 19 - Statistical quality control. Harvest Cereals...Ch. 19 - Quality improvement, Pareto diagram,...Ch. 19 - Quality improvement, relevant costs, and relevant...Ch. 19 - Quality improvement, relevant costs, and relevant...Ch. 19 - Waiting times, manufacturing cycle times. The...Ch. 19 - Prob. 19.34PCh. 19 - Manufacturing cycle times, relevant revenues, and...Ch. 19 - Compensation linked with profitability, waiting...Ch. 19 - Ethics and quality. Weston Corporation...Ch. 19 - Prob. 19.38P
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