Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
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Question
Chapter 25, Problem 25.6APR
a)
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.
To Determine: The contribution margin per unit for each product of Company HS.
b)
To determine
The relative product profitability per unit for each product of Company HS.
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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 $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…
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…
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.
Chapter 25 Solutions
Accounting
Ch. 25 - Explain the meaning of (a) differential revenue,...Ch. 25 - A company could sell a building for 250,000 or...Ch. 25 - A chemical company has commodity-grade and...Ch. 25 - A company accepts incremental business at a...Ch. 25 - A company fabricates a component at a cost of...Ch. 25 - Prob. 6DQCh. 25 - In the long run, the normal selling price must be...Ch. 25 - Although the cost-plus approach to product pricing...Ch. 25 - How does the target cost concept differ from...Ch. 25 - Prob. 10DQ
Ch. 25 - Under what conditions might a company use...Ch. 25 - Lease or sell Duncan Company owns a machine with a...Ch. 25 - Lease or sell Timberlake Company owns equipment...Ch. 25 - Prob. 25.2APECh. 25 - Discontinue a segment Product B has revenue of...Ch. 25 - Make or buy A restaurant bakes its own bread for a...Ch. 25 - Make or buy A company manufactures various sized...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Prob. 25.5APECh. 25 - Process or sell Product D is produced for 24 per...Ch. 25 - Accept business at special price Product AA is...Ch. 25 - Prob. 25.6BPECh. 25 - Product cost markup percentage Light force Inc....Ch. 25 - Product cost markup percentage Green Thumb Garden...Ch. 25 - Bottleneck profit Product A has a unit...Ch. 25 - Prob. 25.8BPECh. 25 - Activity-based costing Mainline Marine Company has...Ch. 25 - Activity-based costing Casual Cuts Inc. has total...Ch. 25 - Differential analysis for a lease-or-sell decision...Ch. 25 - Prob. 25.2EXCh. 25 - Prob. 25.3EXCh. 25 - Differential analysis for a discontinued product...Ch. 25 - Segment analysis for a service company Charles...Ch. 25 - Decision to discontinue a product On the basis of...Ch. 25 - Make or buy decision Diamond Computer Company has...Ch. 25 - Make-or-buy decision for a service company The...Ch. 25 - Machine replacement decision A company is...Ch. 25 - Differential analysis for machine replacement Kim...Ch. 25 - Sell or process further Big Fork Lumber Company...Ch. 25 - Prob. 25.12EXCh. 25 - Decision on accepting additional business...Ch. 25 - Accepting business at a special price Portable...Ch. 25 - Prob. 25.15EXCh. 25 - Accepting business at a special price for a...Ch. 25 - Product cost concept of product pricing La Femme...Ch. 25 - Product cost concept of product costing Smart...Ch. 25 - Target costing Toyota Motor Corporation uses...Ch. 25 - Target costing Instant Image Inc. manufactures...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Activity-based costing CardioTrainer Equipment...Ch. 25 - Activity-based costing Zeus Industries...Ch. 25 - Activity rates and product costs using...Ch. 25 - Total cost concept of product pricing Based on the...Ch. 25 - Variable cost concept of product pricing Based on...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Prob. 25.4APRCh. 25 - Prob. 25.5APRCh. 25 - Prob. 25.6APRCh. 25 - Activity-based costing Pure Cane Sugar Company...Ch. 25 - Prob. 25.1BPRCh. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Differential analysis for further processing The...Ch. 25 - Prob. 25.5BPRCh. 25 - Product pricing and profit analysis with...Ch. 25 - Activity-based costing Southeastern Paper Company...Ch. 25 - Ethics in Action Aaron McKinney is a cost...Ch. 25 - Communication The following conversation took...Ch. 25 - Decision on accepting additional business A...Ch. 25 - Accept business at a special price for a service...Ch. 25 - Identifying product cost distortion Peachtree...
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