Mozaic Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system (CAM) or a labor-intensive production system (LIP). The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: CAM System LIP System Direct Material Direct Labor (DLH) $5.00 $5.60 0.5 DLH x $12 $6.00 0.8 DLH x $9 $7.20 Variable Overhead $3.00 0.8 DLH x $6 $1,320,000 0.5 DLH x $6 $4.80 Fixed Overhead* $2,440,000 * These costs are directly traceable to the new product line. They would not be incurred if the new product were not produced. The company's marketing research department has recommended an introductory unit sales price of $30. Selling expenses are estimated to be $500,000 annually plus $2 for each unit sold. (Ignore income taxes.) Required: 1. Describe the circumstances under which the firm should employ each of the two manufacturing methods. 2. Identify some business factors other than operating leverage that management should consider before selecting the manufacturing method.

DK manufactures three products, W, X and Y. Each product uses the same materials and the same type of direct labour but in different quantities. The company currently uses a cost plus basis to determine the selling price of its products. This is based on full cost using an overhead absorption rate per direct labour hour. However, the managing director is concerned that the company may be losing sales because of its approach to setting prices. He thinks that a marginal costing approach may be more appropriate, particularly since the workforce is guaranteed a minimum weekly wage and has a three month notice period. Required: a) Given the managing director's concern about DK's approach to setting selling prices, discuss the advantages and disadvantages of marginal cost plus pricing AND total cost-plus pricing. The direct costs of the three products are shown below: Product Y Budgeted annual production (units) 15,000 24,000 20,000 $ per unit $ per unit $ per unit Direct materials 35 40 45…

An operations manager is deciding on the level of automation for a new process.  The fixed cost for automation includes the equipment purchase price, installation, and initial spare parts.  The variable costs per unit for each level of automation are primarily labor related.  Each unit can be sold for $81.  As in many cases, you have the default alternative of doing nothing ($0 fixed cost, $0 variable costs). Hint: For these questions, also consider the “Do Nothing” option as a viable option when making your decision. Alternative Fixed Costs Variable Costs per Unit A $100,000 $54 B $272,000 $31 C $560,000 $20 Recommended: graph each alternative with units on the x-axis and $ on the y-axis.  Also, include revenue on the chart.  Identify the break-even points and points of indifference.

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