Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 24, Problem 24.6BPR
To determine
Production Bottleneck: Production Bottleneck is a situation of constraint in the manufacturing company, where the demand for goods is higher, than the production capacity of the company. In this situation the production or contribution per bottleneck hour is calculated to determine the value of a product.
a)
To Determine: The contribution margin per unit for each product of Company WC.
b)
To determine
The relative product profitability per unit for each product of Company WC.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Product Pricing and Profit Analysis with Bottleneck Operations
Hercules Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Hercules is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Hercules wants to improve steel operation profitability. The variable conversion cost is $15 per process hour. The fixed cost is $200,000. In addition, the cost analyst was able to determine the following information about the three products:
HighGrade
Good Grade
Regular Grade
Budgeted units produced
5,000
5,000
5,000
Total process hours per unit
12
11
10
Furnace hours per unit
4
3
2.5
Unit selling price
$280
$270
$250
Direct materials cost per unit
$90
$84
$80
The furnace operation is part of the…
2. Provide an analysis to determine the relative product profitability, assuming that the furnace is a bottleneck.
Contribution Margin
Per Furnace Hour
High Grade
41.5 X
Good Grade
$
47.33
X
Regular Grade
$
33
X
Feedback
V Check My Work
1. For each grade, subtract the variable conversion cost and direct materials cost per unit from the selling price.
2. For each grade, divide the unit contribution margin by the furnace (bottleneck) hours per unit.
Product Pricing and Profit Analysis with Bottleneck Operations
Hercules Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Hercules is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Hercules wants to improve steel operation profitability. The variable conversion cost is $10 per process hour. The fixed cost is $513,000. In addition, the cost analyst was able to determine the following information about the three products:
High Grade
Good Grade
Regular Grade
Budgeted units produced
3,000
3,000
3,000
Total process hours per unit
15
13
10
Furnace hours per unit
4
3
5
Unit selling price
$299
$247
$264
Direct materials cost per unit
$113
$105
$99
The furnace operation is part of the total process for each of these three products. Thus, for example, 4 of…
Chapter 24 Solutions
Financial & Managerial Accounting
Ch. 24 - Explain the meaning of (A) differential revenue,...Ch. 24 - A company could sell a building for 250,000 or...Ch. 24 - A chemical company has a commodity-grade and...Ch. 24 - A company accepts incremental business at a...Ch. 24 - Prob. 5DQCh. 24 - Prob. 6DQCh. 24 - In the long run, the normal selling price must he...Ch. 24 - Although the cost-plus approach to product pricing...Ch. 24 - Prob. 9DQCh. 24 - What is the appropriate measure of a products...
Ch. 24 - Lease or sell McFadden Company owns equipment with...Ch. 24 - Prob. 24.2BECh. 24 - Make or buy A company manufactures various-sized...Ch. 24 - Replace equipment A machine with a book value of...Ch. 24 - Process or sell Product J19 is produced for 11 per...Ch. 24 - Accept business at special price Product A is...Ch. 24 - Product cost markup percentage Green Thumb Garden...Ch. 24 - Prob. 24.8BECh. 24 - Differential analysis for a lease or sell decision...Ch. 24 - Prob. 24.2EXCh. 24 - Differential analysis for a discontinued product A...Ch. 24 - Differential analysis for a discontinued product...Ch. 24 - Prob. 24.5EXCh. 24 - Prob. 24.6EXCh. 24 - Make-or-buy decision Fremont Computer Company has...Ch. 24 - Make-or-buy decision for a service company The...Ch. 24 - Machine replacement decision A company is...Ch. 24 - Differential analysis for machine replacement Kim...Ch. 24 - Sell or process further Calgary Lumber Company...Ch. 24 - Sell or process further Rise N Shine Coffee...Ch. 24 - Decision on accepting additional business...Ch. 24 - Accepting business at a special price Portable...Ch. 24 - Prob. 24.15EXCh. 24 - Product cost method of product pricing La Femme...Ch. 24 - Product cost method of product costing Smart...Ch. 24 - Target costing Toyota Motor Corporation uses...Ch. 24 - Target costing Instant Image Inc. manufactures...Ch. 24 - Prob. 24.20EXCh. 24 - Product decisions under bottlenecked operations...Ch. 24 - Appendix Total cost method of product pricing...Ch. 24 - Appendix Variable cost method of product pricing...Ch. 24 - Differential analysis involving opportunity costs...Ch. 24 - Differential analysis for machine replacement...Ch. 24 - Differential analysis for sales promotion proposal...Ch. 24 - Differential analysis for further processing The...Ch. 24 - Prob. 24.5APRCh. 24 - Product pricing and profit analysis with...Ch. 24 - Differential analysis involving opportunity costs...Ch. 24 - Differential analysis for machine replacement...Ch. 24 - Differential analysis for sales promotion proposal...Ch. 24 - Differential analysis for further processing The...Ch. 24 - Prob. 24.5BPRCh. 24 - Prob. 24.6BPRCh. 24 - Service yield pricing and differential analysis...Ch. 24 - Prob. 2ADMCh. 24 - Prob. 3ADMCh. 24 - Ethics in Action Aaron McKinney is a cost...Ch. 24 - Prob. 24.3TIF
Knowledge Booster
Similar questions
- Product pricing and profit analysis with bottleneck operations Hercules Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Hercules is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Hercules wants to improve steel operation profitability. The variable conversion cost is 15 per process hour. The fixed cost is 200,000. In addition, the cost analyst was able to determine the following information about the three products: The furnace operation is part of the total process for each of these three products. Thus, for example, 4.0 of the 12.0 hours required to process High Grade steel are associated with the furnace. Instructions 1. Determine the unit contribution margin for each product. 2. Provide an analysis to determine the relative product profitability, assuming that the furnace is a bottleneck.arrow_forwardProduct Pricing and Profit Analysis with Bottleneck Operations Hercules Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Hercules is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Hercules wants to improve steel operation profitability. The variable conversion cost is $10 per process hour. The fixed cost is $505,000. In addition, the cost analyst was able to determine the following information about the three products: High Grade Good Grade Regular Grade Budgeted units produced 5,000 5,000 5,000 Total process hours per unit 14 12 9 Furnace hours per unit 4 3 5 Unit selling price $274 $233 $245 Direct materials cost per unit $110 $107 $95 The furnace operation is part of the total process for each of these three products. Thus, for example, 4 of…arrow_forwardProduct Pricing and Profit Analysis with Bottleneck Operations Hercules Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Hercules is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Hercules wants to improve steel operation profitability. The variable conversion cost is $12 per process hour. The fixed cost is $407,000. In addition, the cost analyst was able to determine the following information about the three products: High Grade Good Grade Regular Grade Budgeted units produced 6,000 6,000 6,000 Total process hours per unit 15 13 10 Furnace hours per unit 5 4 3 Unit selling price $330 $271 $246 Direct materials cost per unit $110 $107 $96 The furnace operation is part of the total process for each of these three products. Thus, for example,…arrow_forward
- Product Pricing and Profit Analysis with Bottleneck Operations Hercules Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Hercules is able to sell as much as it can produce of all three. The furnace operation is a bottleneck in the process and is running at 100% of capacity. Hercules wants to improve steel operation profitability. The variable conversion cost is $14 per process hour. The fixed cost is $380,000. In addition, the cost analyst was able to determine the following information about the three products: High Grade Good Grade Regular Grade Budgeted units produced 3,000 3,000 3,000 Total process hours per unit 16 14 11 Furnace hours per unit 5 3 4 Unit selling price $373 $307 $300 Direct materials cost per unit $114 $105 $98 The furnace operation is part of the total process for each of these three products. Thus, for example, 5 of…arrow_forwardProduct pricing and profit analysis with bottleneck operationsHercules Steel Company produces three grades of steel: high, good, andregular grade. Each of these products (grades) has high demand in themarket, and Hercules is able to sell as much as it can produce of allthree. The furnace operation is a bottleneck in the process and isrunning at 100% of capacity. Hercules wants to improve steel operationprofitability. The variable conversion cost is $15 per process hour. Thefixed cost is $200,000. In addition, the cost analyst was able to determinethe following information about the three products: The furnace operation is part of the total process for each of these threeproducts. Thus, for example, 4.0 of the 12.0 hours required to processHigh Grade steel are associated with the furnace.Instructions1. Determine the unit contribution margiñ for each product.2. Provide an analysis to determine the relative productprofitability, assuming that the furnace is a bottleneck.arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $167,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $381 $209 $199 Unit variable cost 300 171 175 Unit contribution margin $ 81 $ 38 $ 24 Autoclave hours per unit 6 4 2 Total process hours per unit 18 8 6 Budgeted units of production 2,600 2,600 2,600 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units…arrow_forward
- Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $85,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $184 $160 $100 Unit variable cost 130 120 76 Unit contribution margin $ 54 $ 40 $ 24 Autoclave hours per unit 3 2 1 Total process hours per unit 5 4 2 Budgeted units of production 3,000 3,000 3,000 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Round the "Unit contribution margin per…arrow_forwardProduct decisions under bottlenecked operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $85,000 for the company as a whole. In addition, the following information is available about the three products: a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production.b. Prepare an analysis showing which product is tile most profitable per bottleneck hour.arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $296,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $324 $286 $158 Unit variable cost 255 234 139 Unit contribution margin $ 69 $ 52 $ 19 Autoclave hours per unit 6 4 2 Total process hours per unit 18 8 6 Budgeted units of production 4,700 4,700 4,700 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium Small Total Units…arrow_forward
- Product Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $159,000 for the company as a whole. In addition, the following information is available about the three products: Large Medium Small Unit selling price $122 $220 $398 Unit variable cost 96 180 350 Unit contribution margin $ 26 $ 40 $ 48 Autoclave hours per unit 2 4 6 Total process hours per unit 4 8 18 Budgeted units of production 3,100 3,100 3,100 a. Determine the contribution margin by glass type and the total company income from operations for the budgeted units of production. Large Medium…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $176,000 for the company as a whole. In addition, the following information is available about the three products: Line Item Description Large Medium Small Unit selling price $254 $143 $266 Unit variable cost (200) (117) (234) Unit contribution margin $ 54 $ 26 $ 32 Autoclave hours per unit 6 2 4 Total process hours per unit 12 4 12 Budgeted units of production 3,500 3,500 3,500 a. Determine the contribution margin by glass type and the total company operating income for the budgeted units of production. Line Item Description Large…arrow_forwardProduct Decisions Under Bottlenecked Operations Youngstown Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Youngstown Glass is able to sell all the safety glass that it can make. The production process includes an autoclave operation, which is a pressurized heat treatment. The autoclave is a production bottleneck. Total fixed costs are $91,000 for the company as a whole. In addition, the following information is available about the three products: Unit selling price Unit variable cost Unit contribution margin Autoclave hours per unit Total process hours per unit Budgeted units of production Large Medium Small $240 $94 $199 (189) (77) (175) $ 51 $ 17 $ 24 6 2 4 18 4 8 2,200 2,200 2,200 a. Determine the contribution margin by glass type and the total company operating income for the budgeted units of production. Large Medium Small Units produced Revenues Variable costs Contribution margin Fixed costs…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub