Week 5 Assignment
1.Problem 7-19 – Abilene Meat
Processing
2.Problem 7-20 – Hallas Company
3.Problem 7-22 – Bronson Company
4.Problem 7-27 – Brandilyn Toy
Company
5.Problem 8-24 – Nagoya
Amusements Corporation
6.Problem 8-26 – Chateau Beaune
Examples: P7-18, P7-21, P7-23,
P8-21, P8-27, P8-30
Problem 7-19 – Abilene Meat
Processing
Sell or Process Further
Abilene Meat Processing Corporation is a major processor of beef
and other meat products. The company has a large amount of T-bone steaks as is
or to process them further into filet mignon and New York cut steaks.
Management believes that a 1-pound T-bone steak would yield the
following profit:
Wholesale selling price
($2.25 per pound)
$2.25
Less joint costs
incurred up to the split-off point where
T-bone steak can be
identified as a separate
product
1.70
Profit per
pound
$0.55
As mentioned above, instead of being sold as is, the T-bone
steaks could be further processed into filet mignon and New York cut steaks.
Cutting one side of a T-bone steak provides the filet mignon, and cutting the
other side provides the New York cut. One 16-ounce T-bone steak cut in this way
will yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining
ounces are waste. The cost of processing the T-bone steaks into these cuts can
be sold wholesale for $.20 per pound. The filet mignon can be sold for $3.60
per pound, and the New York cut can be sold wholesale $2.90 per pound.
Required:
1. Determine the profit per pound from processing the T-bone
steaks further into filet mignon and New York cut steaks.
2. Would you recommend that the T-bone steaks be sold as is or
processed further? Why?
P7-20 Hallas Company manufactures
fast-bonding glue in its Northwest plant Shutting Down or Continuing to Operate a Plant – Hallas Company
P7-20 Shutting
Down or Continuing to Operate a Plant – Hallas Company
P-20 Hallas Company manufactures fast-bonding glue in its
Northwest plant. The company normally produces and sells 40,000 gallons of the
glue each month. This glue, which is known as MJ-7, is used in the wood
industry to manufacture plywood. The selling price of MJ-7 is $35 per gallon,
variable costs are $21 per gallon, fixed manufacturing overhead costs in the
plant total $230,000 per month, and the fixed selling costs total $310,000 per
month.
Strikes in the mills that purchase the bulk of the MJ-7 glue
have caused Hallas Company’s sales to temporarily drop to only 11,000 gallons
per month. Hallas Company’s management estimates that the strike will last for
two months, after which sales of MJ-7 should return to normal. Due to the
current low level of sales, Hallas Company’s management is thinking about
closing down the Northwest plant during the strike.
If Hallas Company does close down the Northwest plant, fixed
manufacturing overhead costs can be reduced by $60,000 per month and fixed
selling costs can be reduced by 10%. Start-up costs at the end of the shutdown
period would total $14,000. Because Hallas Company uses lean production
methods, no inventories are on hand.
Required:
1. Assuming that the strikes continue for two months, would you
recommend that Hallas Company close the Northwest plant? Explain. Show
computations to support your answer.
2. At what level of sales (in gallons) for the two-month period
should Hallas Company be indifferent between closing the plant or keeping it
open? Show computations.
Hint: This is a type of break-even analysis, except that the
fixed cost portion of your break-even computation should include only those
fixed costs that are relevant (i.e. avoidable) over the two-month period.
P7-22 Bronson Company manufactures a variety of ballpoint pens.
The company has just received an offer from an outside supplier to provide the
ink cartridge for the company’s Zippo pen line, at a price of $0.48 per dozen
cartridges. The company is interested in this offer because its own production
of cartridges is at capacity.
Bronson Company estimates that if the supplier’s offer were
accepted, the direct labor and variable manufacturing overhead costs of the
Zippo pen line would be reduced by 10% and the direct materials cost would be
reduced by 20%.
Under present operations, Bronson Company manufactures all of
its own pens from start to finish. The Zippo pens are sold through wholesalers
at $4 per box. Each box contains one dozen pens. Fixed manufacturing overhead
costs charged to the Zippo pen line total $50,000 each year. (The same
equipment and facilities are used to produce several pen lines.) The present
cost of producing one dozen Zippo pens (one box) is given below:
Direct
materials
$1.50
Direct
labor
1.00
Manufacturing
overhead
0.80*
Total
cost
$3.30
*Includes both variable and fixed manufacturing overhead, based
on production of 100,000 boxes of pens each year.
Required:
1. Should Bronson Company accept the outside supplier’s offer?
Show computations.
2. What is the maximum price that Bronson Company should be
willing to pay the outside supplier per dozen cartridges? Explain.
3. Due to the bankruptcy of a competitor, Bronson Company
expects to sell 150,000 boxes of produce the cartridges for only 100,000 boxes
of Zippo pens annually. By incurring $30,000 in added fixed cost each year, the
company could expand its production of cartridges to satisfy the anticipated
demand for Zippo pens. The variable cost per unit to produce the additional
cartridges would be the same as at present. Under these circumstances, how many
boxes of cartridges should be purchased from the outside supplier and how many
should be made by Bronson? Show computations to support your answer.
4. What qualitative factors should Bronson Company consider in
determining whether it should make or buy the ink cartridges?
P7-27 The Brandilyn Toy Company manufactures a line of dolls and
a doll dress sewing kit. Demand
P7-27 Utilization of a Constrained
Resource
P7-27 The Brandilyn Toy Company manufactures a line of dolls and
a doll dress sewing kit. Demand for the dolls increasing, and management
requests assistance from you in determining the best sales and production mix
for the coming year. The company has provided the data:
Product
Demand next year Selling
price Direct
Materials Direct Labor
Per
Unit
Per Unit
Marcy
26,000
$35.00
$3.50
$4.80
Tina
42,000
$24.00
$2.30
$3.00
Carl
40,000
$22.00
$4.50
$6.40
Lenny
46,000
$18.00
$3.10
$6.00
Sewing kit
450,000
$14.00
$1.50
$2.40
The following additional information
is available:
a. The company’s plant has a capacity of 150,000 direct
labor-hours per year on a single-shift basis. The company’s present employees
and equipment can produce all five products.
b. The direct labor rate of $12.00 per hour is expected to
remain unchanged during the coming year.
c. Fixed costs total $356,000 per year. Variable overhead costs
are $4.00 per direct labor-hour
d. All of the company’s nonmanufacturing costs are fixed.
e. The company’s finished goods inventory is negligible and can
be ignored.
Required:
1. Determine the contribution margin per direct labor-hour expended
on each product.
2. Prepare a schedule showing the total direct labor-hours that
will be required to produce the units estimated to be sold during the coming
year.
3. Examine the data you have computed in (1) and (2) above. How
would you allocate the 150,000 direct labor-hours of capacity to Brandilyn Tom
Company’s various products?
4. What is the highest price, in terms of rate per hour, that
Brandilyn Toy Company should be willing to pay for additional capacity (that
is, for added direct labor time)?
5. Identify ways in which the company might be able to obtain
additional output so that it would not have to leave some demand for its
products unsatisfied.
P8-24 Nagoya Amusements
Corporation
P8-24Simple rate of return; payback
P8-24 Nagoya Amusements Corporation places electronic games and
other amusement devices in super markets and similar outlets throughout Japan.
Nagoya Amusements is investing the purchase of a new electronic game called
Mystic Invaders. The manufacturer will sell 20 games to Nagoya Amusements for a
total price of ¥180,000. (The Japanese currency is the yen, which is denoted by
the symbol ¥.) Nagoya Amusements has determined the following additional
information about the game:
a. The game would have a five-year useful life and a
negligible salvage value. The company uses straight-line depreciation.
b. The game would replace other games that are unpopular
and generating little revenue. These other games would be sold for a total
¥30,000.
c. Nagoya Amusement estimates that Mystic Invaders would
generate annual incremented revenues of ¥ 200,000 (total for all 20 games).
Annual incremented out-of-pocket costs would be (in total): maintenance, ¥
50,000; and insurance, ¥ 10,000. In addition, Nagoya Amusements would have to
pay a commission of 40% of total revenues to the supermarkets and other outlets
in which the games were placed.
Required:
1. Prepare a contribution format income statement showing the
net operating income each year from Mystic Invaders.
2. Compute the simple rate of return on Mystic Invaders. Will
the game be purchased if Nagoya Amusements accept any project with a simple
rate of return greater than 14%?
3. Compute the payback period on Mystic Invaders. If the company
accepts any investment with a payback period of less than three years, will the
game be purchased?
6. Problem 8-26 – Chateau Beaune
Simple rate of return; payback;
internal rate of return
P8-26 Chateau Beaune is a family-owned winery located in the
Burgundy region of France, which is headed by Gerard Despinoy. The harvesting
season in early fall is the busiest part of the year for the winery, and many
part-time workers are hired to help pick and process grapes. Mr. Despinoy is
investigating the purchase of a harvesting machine that would significantly
reduce the amount of labor required in the picking process. The harvesting
machine is built to straddle grapevines, which are laid out in low-lying rows.
Two workers are carried on the machine just above ground level, one on each
side of the vine. As the machine slowly crawls through the vineyard, the worker
cut bunches of grapes from the vines, which then fall into a hopper. The
machine separates the grapes from the stems and other woody debris. The debris
are then pulverized and spread behind the machine as a rich ground mulch. Mr.
Despinoy has gathered the following information relating to the decision of
whether to purchase the machine:
a. The winery would save €190,000 per year in labor costs with
the new harvesting machine. In addition, the company would no longer have to
purchase and spread ground mulch-at an annual savings of €10,000. (The French
currency is the euro, which is denoted by the symbol €.)
b. The harvesting machine would cost €480,000. It would have an
estimated 12-year useful life and zero salvage value. The winery uses
straight-line depreciation.
c. Annual out-of-pocket costs associated with the harvesting
machine would be insurance, €1,000; fuel, €9,000; and a maintenance contract,
€12,000. In addition, two operators would be hired and trained for the machine,
and they would be paid a total of €70,000 per year, including all benefits.
d. Mr. Despinoy feels that the investment in the harvesting
machine should earn at least a 16% rate of return.
Required:
1. Determine the annual net savings in cash operating costs that
would be realized if the harvesting machine were purchased.
2. Compute the simple rate of return expected from the
harvesting machine.
3. Compute the payback period on the harvesting machine. Mr.
Despinoy will not purchase equipment unless it has a payback period of five
years or less. Under the criterion, should the harvesting machine be purchased?
4. Compute (to the nearest whole percent) the internal rate of
return promised by the harvesting machine. Based on this computation, does it
appear that the simple rate of return is an accurate guide in investment
decisions?
TUTORIAL PREVIEW
1.
Determine the annual
net savings in cash operating costs that would be realized if the harvesting
machine were purchased.
|
Labor savings
|
€190,000
|
|
|
Ground mulch savings
|
10,000
|
€200,000
|
|
Less out-of-pocket costs:
|
|
|
|
Operator
|
70,000
|
|
file name: Week 5 Assignment.doc File type: .doc PRICE: $25
