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Strategic Initiatives and CSR Get Hitched Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company's current sales revenue is $1.5 million. Currently, the company's gross profit is 35% of sales, but the company's target gross profit percentage is 40%. The company's current monthly cost of production is $975,000. Of this cost, 60% is for direct labor, 30% is for direct materials, and 10% is for overhead. The strategic initiative being tested at Get Hitched is a redesign of its production process that splits the process into two sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The make up of the costs of production for Procedure 2 is currently 55% direct labor, 25% direct materials, and 20% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2. 1. Determine what the cost of direct labor, direct materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross profit at the current level of sales. Cost make up of Procedure 1: $450,000 X 405,000 X 45,000 X 900,000 X Direct Labor Direct Materials Overhead Total Cost make up of Procedure 2: Direct Labor Direct Materials Overhead Total 123 X Incorrect

Strategic Initiatives and CSR Get Hitched Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company's current sales revenue is $1.5 million. Currently, the company's gross profit is 35% of sales, but the company's target gross profit percentage is 40%. The company's current monthly cost of production is $975,000. Of this cost, 60% is for direct labor, 30% is for direct materials, and 10% is for overhead. The strategic initiative being tested at Get Hitched is a redesign of its production process that splits the process into two sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The make up of the costs of production for Procedure 2 is currently 55% direct labor, 25% direct materials, and 20% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2. 1. Determine what the cost of direct labor, direct materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross profit at the current level of sales. Cost make up of Procedure 1: $450,000 X 405,000 X 45,000 X 900,000 X Direct Labor Direct Materials Overhead Total Cost make up of Procedure 2: Direct Labor Direct Materials Overhead Total 123 X Incorrect

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Strategic Initiatives and CSR Get Hitched Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company's current sales revenue is $1.5 million. Currently, the company's gross profit is 35% of sales, but the company's target gross profit percentage is 40%. The company's current monthly cost of production is $975,000. Of this cost, 60% is for direct labor, 30% is for direct materials, and 10% is for overhead. The strategic initiative being tested at Get Hitched is a redesign of its production process that splits the process into two sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The make up of the costs of production for Procedure 2 is currently 55% direct labor, 25% direct materials, and 20% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2. 1. Determine what the cost of direct labor, direct materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross profit at the current level of sales. Cost make up of Procedure 1: Direct Labor Direct Materials Overhead Total Cost make up of Procedure 2: Direct Labor Direct Materials Overhead 450,000 X 405,000 X 45,000 X $900,000 X Total 123 X Incorrect
Transcribed Image Text:Strategic Initiatives and CSR Get Hitched Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company's current sales revenue is $1.5 million. Currently, the company's gross profit is 35% of sales, but the company's target gross profit percentage is 40%. The company's current monthly cost of production is $975,000. Of this cost, 60% is for direct labor, 30% is for direct materials, and 10% is for overhead. The strategic initiative being tested at Get Hitched is a redesign of its production process that splits the process into two sequential procedures. The make up of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The make up of the costs of production for Procedure 2 is currently 55% direct labor, 25% direct materials, and 20% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2. 1. Determine what the cost of direct labor, direct materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross profit at the current level of sales. Cost make up of Procedure 1: Direct Labor Direct Materials Overhead Total Cost make up of Procedure 2: Direct Labor Direct Materials Overhead 450,000 X 405,000 X 45,000 X $900,000 X Total 123 X Incorrect
2. The company's actual direct materials cost is $279,000 for Procedure 1. Determine the actual cost of direct labor, direct materials, and overhead for each procedure, and the total cost of production for each procedure. Cost make up of Procedure 1: Direct Labor Direct Materials Overhead Total Cost make up of Procedure 2: Direct Labor Direct Materials Overhead 168,750 X 371,250 X Total 4 3. The company is planning a CSR initiative to reuse some of the indirect materials used in production during Procedure 2. These indirect materials: normally make up 60% of the overhead cost for Procedure 2, but the CSR Initiative would reduce the usage of indirect materials. Determine what the maximum new cost of these indirect materials could be for Procedure 2 if this CSR initiative is expected to enable the company to meet its target gross profit percentage (holding all other costs constant). Maximum new cost of P2 overhead materials:
Transcribed Image Text:2. The company's actual direct materials cost is $279,000 for Procedure 1. Determine the actual cost of direct labor, direct materials, and overhead for each procedure, and the total cost of production for each procedure. Cost make up of Procedure 1: Direct Labor Direct Materials Overhead Total Cost make up of Procedure 2: Direct Labor Direct Materials Overhead 168,750 X 371,250 X Total 4 3. The company is planning a CSR initiative to reuse some of the indirect materials used in production during Procedure 2. These indirect materials: normally make up 60% of the overhead cost for Procedure 2, but the CSR Initiative would reduce the usage of indirect materials. Determine what the maximum new cost of these indirect materials could be for Procedure 2 if this CSR initiative is expected to enable the company to meet its target gross profit percentage (holding all other costs constant). Maximum new cost of P2 overhead materials:
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