Orbital Communications, Inc. manufactures communications satellites used in TV signal transmission. The firm currently purchases one component for its satellites from a European firm. An Orbital Communications engineering team has found a way to use the company’s own component, part number A200, instead of the European component. However, the Orbital Communications component must be modified at a cost of $500 per part. The European component costs $8,900 per part. Orbital Communications’ part number A200 costs $5,100 before it is modified. Orbital Communications currently uses 10 of the European components per year.
Required: Calculate the annual differential cost between Orbital Communications’ two production alternatives.
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Managerial Accounting: Creating Value in a Dynamic Business Environment
- Photon Technologies, Inc., a manufacturer of batteries for mobile phones, signed a contract with a large electronics manufacturer to produce three models of lithium-ion battery packs for a new line of phones. The contract calls for the following: Photon Technologies can manufacture the battery packs at manufacturing plants located in the Philippines and Mexico. The unit cost of the battery packs differs at the two plants because of differences in production equipment and wage rates. The unit costs for each battery pack at each manufacturing plant are as follows: The PT-100 and PT-200 battery packs are produced using similar production equipment available at both plants. However, each plant has a limited capacity for the total number of PT-100 and PT-200 battery packs produced. The combined PT-100 and PT-200 production capacities are 175,000 units at the Philippines plant and 160,000 units at the Mexico plant. The PT-300 production capacities are 75,000 units at the Philippines plant and 100,000 units at the Mexico plant. The cost of shipping from the Philippines plant is $0.18 per unit, and the cost of shipping from the Mexico plant is $0.10 per unit. Develop a linear program that Photon Technologies can use to determine how many units of each battery pack to produce at each plant to minimize the total production and shipping cost associated with the new contract. Solve the linear program developed in part (a), to determine the optimal production plan. Use sensitivity analysis to determine how much the production and/or shipping cost per unit would have to change to produce additional units of the PT-100 in the Philippines plant. Use sensitivity analysis to determine how much the production and/or shipping cost per unit would have to change to produce additional units of the PT-200 in the Mexico plant.arrow_forwardMossfort, Inc., has a division in Canada that makes long-lasting exterior wood stain. Mossfort has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting wood stain from the Canadian division, since this type of stain is not currently available. The Exterior Stain Division incurs manufacturing costs of 13.45 for one gallon of stain. If the Retail Division purchases the stain from the Canadian division, the shipping costs will be 1.40 per gallon, but sales commissions of 0.75 per gallon will be avoided with an internal transfer. The Retail Division plans to sell the stain for 32.80 per gallon. Normally, the Retail Division earns a gross margin of 35 percent above cost of goods sold. Required: 1. Which Section 482 method should be used to calculate the allowable transfer price? 2. Calculate the appropriate transfer price per gallon. (Round to the nearest cent.)arrow_forwardPearson Company manufactures a variety of electronic printed circuit boards (PCBs) that go into cellular phones. The company has just received an offer from an outside supplier to provide the electrical soldering for Pearson’s Motorola product line (Z-7 PCB, slimline). The quoted price is $4.80 per unit. Pearson is interested in this offer, since its own soldering operation of the PCB is at its peak capacity. Outsourcing option. The company estimates that if the supplier’s offer were accepted, the direct labor and variable overhead costs of the Z-7 slimline would be reduced by 15% and the direct material cost would be reduced by 20%. In-house production option. Under the present operations, Pearson manufactures all of its own PCBs from start to finish. The Z-7 slimlines are sold through Motorola at $20 per unit. Fixed overhead charges to the Z-7 slimline total $20,000 each year. The further breakdown of producing one unit is as follows: The manufacturing overhead of $4.00 per unit…arrow_forward
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