Question : 91) Fluty Corporation manufactures a product that has two parts, : 1216907

 

91) Fluty Corporation manufactures a product that has two parts, A and B. It is currently considering two alternative proposals related to these parts.

 

The first proposal is for buying Part A. This would free up some of the plant space for the manufacture of more of Part B and assembly of the final product. The product vice president believes the additional production of the final product can be sold at the current market price. No other changes in manufacturing would be needed.

 

The second proposal is for buying new equipment for the production of Part B. The new equipment requires fewer workers and uses less power to operate. The old equipment has a net disposal value of zero.

 

Required:

Tell whether the following items are relevant or irrelevant for each proposal. Treat each proposal independently.

 

a.Total variable manufacturing overhead, Part A

b.Total variable manufacturing overhead, Part B

c.Cost of old equipment for manufacturing Part B

d.Cost of new equipment for manufacturing Part B

e.Total variable selling and administrative costs

f.Sales revenue of the product

g.Total variable costs of assembling final products

h.Total direct manufacturing materials, Part A

i.Total direct manufacturing materials, Part B

j.Total direct manufacturing labor, Part A

k.Total direct manufacturing labor, Part B

 

92) Parker and Spitzer Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers:

 

Direct materials$66

Direct labor30

Variable manufacturing support48

Fixed manufacturing support104

Total manufacturing costs248

Markup (50%)124

Targeted selling price$372

 

Parker and Spitzer Manufacturing has excess capacity.

 

Required:

a.What is the full cost of the product per unit?

b.What is the contribution margin per unit?

c.Which costs are relevant for making the decision regarding this one-time-only special order? Why?

d.For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order?

e.For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of $200 per unit? Why or why not?

 

93) Loft Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:

 

Direct materials$50.00

Direct labor62.50

Variable manufacturing support              30.00

Fixed manufacturing support37.50

Total manufacturing costs180.00

Markup (60%)108.00

Targeted selling price$288.00

 

Loft Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $15 per unit.

 

Required:

a.For Loft Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?

b.Other than price, what other items should Loft Lake Cabinets consider before accepting this one-time-only special order?

c.How would the analysis differ if there was limited capacity?

94) Quiett Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows:

 

Direct materials$ 45,000

Direct manufacturing labor15,000

Variable support costs35,000

Fixed support costs25,000

Total costs$120,000

 

Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.

 

a.Describe avoidable costs. What amount of the WB23 production costs is avoidable?

b.Should Quiett Truck outsource WB23? Why or why not?

c.What other items should Quiett Truck consider before outsourcing any of the parts it currently manufactures?

 

95) Southwestern Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from Jinx Motors for $1,250 each. Southwestern’s plant can manufacture the motors for the following costs per unit:

 

Direct materials$ 500

Direct manufacturing labor250

Variable manufacturing overhead200

Fixed manufacturing overhead350

Total$1,300

 

If Southwestern buys the motors from Jinx, 70% of the fixed manufacturing overhead applied will not be avoided.

 

Required:

a.Should the company make or buy the motors?

b.What additional factors should Southwestern consider in deciding whether or NOT to make or buy the motors?