The vice president of manufacturing is perplexed. When the new Sunbeam Plant beganoperations three years ago it appeared to live up to the expectations of top management. theplant was modern, well lighted, and spacious. Cost variances were favorable, customers werehighly satisfied with quality and service, and the plant reported large segment contributions tocommon costs and profits despite high start-up costs and early period depreciation.Just three years later the Sunbeam Plant seems to be declining into crisis management.Although most cost variances, especially those dealing with cost center efficiency, remainfavorabie, the plant's segment contribution is declining and customers are complaining aboutpoor quality and slow delivery. Several customers have suggested that if the firm cannotcorrect its quality and delivery problems thy will take their business elsewhere. The shop flooris a mess with in-process inventory piled everywhere. Production employees complain ofdifficulty in locating jobs to be worked on, and scheduling personnel have recently requested alarger computer to help keep tract or work-in-process.The vice president said she does not even know where to begin to try and figure outhow to salve the plant's problems. She commented, "What is really weird is that we all work sohard. Our facilities are the best in the business, and I know our employees are dedicated, welltrained, and hard working. They do exactly what we ask, and we have never had any laborproblems. It just seems like the harder we work the worse our problem become.Required:Suggest the nature of Sunbeam Plant's problems and recommend how the vicepresident might begin to try and figure out how to solve the plant's problem. Assume that Thompson Manufacturing Company (TMC) incurs the following costs in producingelectronic components every month:Direct materialsP5.00/unit3.00/unitDirect laborVariable factory overheadFixed factory overhead2.00/unit30,000Assume further that TMC found a producer of the same electronic components and isentertaining the idea of buying 5,000 units per month for one year instead of processing all thecomponents. If this plan pushes through, the buying price per unit will be P2.20. This plan willreduce TMC's material costs by 10% and direct labor & variable factory overhead by 20%.Fixed factory overhead of P20,000 will be eliminated.Required:1. Determine the net effect of buying the components on the net income. Will you outsourcethe components?2. Cite at least two examples of benefits, associated with supply chain management, in theevent that TMC decides to buy the components.

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The vice president of manufacturing is perplexed. When the new Sunbeam Plant bega rations three years ago it appeared to live up to the expectations of top management. the t was modern, well lighted, and spacious. Cost variances were favorable, customers wer ily satisfied with quality and service, and the plant reported large segment contributions to amon costs and profits despite high start-up costs and early period depreciation. Just three years later the Sunbeam Plant seems to be declining into crisis management ough most cost variances, especially those dealing with cost center efficiency, remais rable, the plant's segment contribution is declining and customers are complaining abou r quality and slow delivery. Several customers have suggested that if the firm canno ect its quality and delivery problems thy will take their business elsewhere. The shop flo mess with in-process inventory piled everywhere. Production employees complain c culty in locating jobs to be worked on, and scheduling personnel have recently requested

The vice president of manufacturing is perplexed. When the new Sunbeam Plant bega rations three years ago it appeared to live up to the expectations of top management. the t was modern, well lighted, and spacious. Cost variances were favorable, customers wer ily satisfied with quality and service, and the plant reported large segment contributions to amon costs and profits despite high start-up costs and early period depreciation. Just three years later the Sunbeam Plant seems to be declining into crisis management ough most cost variances, especially those dealing with cost center efficiency, remais rable, the plant's segment contribution is declining and customers are complaining abou r quality and slow delivery. Several customers have suggested that if the firm canno ect its quality and delivery problems thy will take their business elsewhere. The shop flo mess with in-process inventory piled everywhere. Production employees complain c culty in locating jobs to be worked on, and scheduling personnel have recently requested

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7EB: Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has...

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Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are 12,960,000 per year. The total labor minutes available are 1,440,000. During the year, the cell was able to produce 0.6 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs. Required: 1. Compute the theoretical conversion cost per unit. 2. Compute the applied conversion cost per minute (the amount of conversion cost actually assigned to the product). 3. Discuss how this approach to assigning conversion cost can improve delivery time performance. Explain how conversion cost acts as a performance driver for on-time deliveries.
Bobcat uses a traditional cost system and estimates next years overhead will be $800.000, as driven by the estimated 25,000 direct labor hours. It manufactures three products and estimates the following costs: If the labor rate is $30 per hour, what is the per-unit cost of each product?
Patz Company produces two types of machine parts: Part A and Part B, with unit contribution margins of 300 and 600, respectively. Assume initially that Patz can sell all that is produced of either component. Part A requires two hours of assembly, and B requires five hours of assembly. The firm has 300 assembly hours per week. Required: 1. Express the objective of maximizing the total contribution margin subject to the assembly-hour constraint. 2. Identify the optimal amount that should be produced of each machine part and the total contribution margin associated with this mix. 3. What if market conditions are such that Patz can sell at most 75 units of Part A and 60 units of Part B? Express the objective function with its associated constraints for this case and identify the optimal mix and its associated total contribution margin.
Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A is made by Gent, with these per-unit costs in a month when 4.000 units were produced: Variable manufacturing overhead is applied at $1.00 per unit. The other $0.30 of overhead consists of allocated fixed costs. Gent will need 6,000 units of part A for the next years production. Cory Corporation has offered to supply 6,000 units of part A at a price of $7.00 per unit. It Gent accepts the offer, all of the variable costs and $1,200 of the fixed costs will be avoided. Should Gent Designs accept the offer from Cory Corporation?
Remarkable Enterprises requires four units of part A for every unit of Al that it produces. Currently, part A is made by Remarkable, with these per-unit costs in a month when 4,000 units were produced: Variable manufacturing overhead is applied at $1.60 per unit. The other $0.50 of overhead consists of allocated fixed costs. Remarkable will need 8,000 units of part A for the next years production. Altoona Corporation has offered to supply 8,000 units of part A at a price of $8.00 per unit. If Remarkable accepts the offer, all of the variable costs and $2,000 of the fixed costs will be avoided. Should Remarkable accept the offer from Altoona Corporation?
Colonels uses a traditional cost system and estimates next years overhead will be $480,000, with the estimated cost driver of 240,000 direct labor hours. It manufactures three products and estimates these costs: If the labor rate is $25 per hour, what is the per-unit cost of each product?
Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?
Suppose that a company is spending 60,000 per year for inspecting, 30,000 for purchasing, and 40,000 for reworking products. A good estimate of nonvalue-added costs would be a. 70,000. b. 130,000. c. 40,000. d. 90,000. e. 100,000.
Oat Treats manufactures various types of cereal bars featuring oats. Simmons Cereal Company has approached Oat Treats with a proposal to sell the company its top selling oat cereal bar at a price of $27,500 for 20,000 bars. The costs shown are associated with production of 20,000 oat bars currently. The manufacturing overhead consists of $3,000 of variable costs with the balance being allocated to fixed costs. Should Oat Treats make or buy the oat bars?
Lander Parts, Inc., produces various automobile parts. In one plant, Lander has a manufacturing cell with the theoretical capability to produce 450,000 fuel pumps per quarter. The conversion cost per quarter is 9,000,000. There are 150,000 production hours available within the cell per quarter. Required: 1. Compute the theoretical velocity (per hour) and the theoretical cycle time (minutes per unit produced). 2. Compute the ideal amount of conversion cost that will be assigned per subassembly. 3. Suppose the actual time required to produce a fuel pump is 40 minutes. Compute the amount of conversion cost actually assigned to each unit produced. What happens to product cost if the time to produce a unit is decreased to 25 minutes? How can a firm encourage managers to reduce cycle time? Finally, discuss how this approach to assigning conversion cost can improve delivery time. 4. Assuming the actual time to produce one fuel pump is 40 minutes, calculate MCE. How much non-value-added time is being used? How much is it costing per unit? 5. Cycle time, velocity, MCE, conversion cost per unit (theoretical conversion rate actual conversion time), and non-value-added costs are all measures of performance for the cell process. Discuss the incentives provided by these measures.
Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals 146,000. Each door handle sells for 12 and has variable cost of 9; each trim kit sells for 8 and has variable cost of 5. Required: 1. What are the contribution margin per unit and the contribution margin ratio for door handles and for trim kits? 2. If Polaris sells 20,000 door handles and 40,000 trim kits, what is the operating income? 3. How many door handles and how many trim kits must be sold for Polaris to break even? 4. CONCEPTUAL CONNECTION Assume that Polaris has the opportunity to rearrange its plant to produce only trim kits. If this is done, fixed costs will decrease by 35,000, and 70,000 trim kits can be produced and sold. Is this a good idea? Explain.
Markson and Sons leases a copy machine with terms that include a fixed fee each month plus acharge for each copy made. Markson made 9,000 copies and paid a total of $480 in January. In April, they paid $320 for 5,000 copies. What is the variable cost per copy if Markson uses the high-low method to analyze costs?