accounts data bank

66.

Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to determine the price of its product.

If Johnson determines price using a desired return on life cycle costs of 30%, the price is:

A. $262.50

B. $306.00

C. $375.00

D. $364.29

E. $330.00

67. Johnson Marine has the following costs and expected sales for the coming year. Johnson is considering a number of different methods to determine the price of its product.

If Johnson determines price using a 20% markup of life cycle cost, the price is:

A. $262.50

B. $306.00

C. $375.00

D. $364.29

E. $330.00

68. Precision Instruments, Inc. is a national firm manufacturing a full line of surgical tools for veterinarians. Recent technological developments have produced a significantly higher grade of steel to make surgical instruments and tools. All of Precision's specialized equipment is designed and calibrated to produce surgical tools using current surgical steel stock. Precision's management wants to begin using the new grade of surgical steel, but recognizes the need to redesign and calibrate existing production equipment and/or purchase newly designed production equipment. Redesign of existing equipment can be done in-house, but requires components from the Swedish manufacturer of the equipment. New equipment will also come from Sweden, but its cost is almost double that paid seven years ago for the existing equipment.

Required: Identify the constraints Precision will face as it chooses to upgrade existing equipment or purchase new equipment. There isconsiderable market pressure to shift to use of the new steel stock for production of surgical tools.

69. DualShaft Inc. manufactures a wide variety of parts for recreational boating, including boat engines. The component is purchased by OEM (original equipment manufacturers) such as Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $790, and sales volume averages 38,000 units per year. Recently, DualShaft's major competitor lowered the price of the equivalent part to $710. The market was very competitive, and DualShaft realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year.

Cost and Usage for Production of 38,000 Units:

Required: 1. Calculate the target cost for maintaining current market share and profitability.2. How should the company attempt to reduce cost to meet the new target cost?

70.

Cling Co. produces and sells three products (X, Y, and Z). The following data relate to the three products. Labor is a fixed cost.

Required: (1) Which is the most profitable product if there is no labor constraint? (2) Which is the most profitable product if there is a

labor constraint?

71. Pat Baldwin owns and operates Outstanding Quality Rentals (OQR). OQR offers kayak rentals and shuttle service on the Petaholee River. Customers can rent kayaks at one station and enter the river there. They can then exit at one of two designated locations to catch a shuttle to return them to their vehicles. Following are the costs involved in providing this service each year.

OQR began business three years ago with a $36,000 expenditure for a fleet of 50 kayaks. These are expected to last seven more years, at which time a new fleet will be purchased. Pat is satisfied with the steady average rentals per year of 9,900.

Required: What price should Pat charge per rental for the business to make a thirty percent life cycle profit?

72. Bell Company produces and sells three products (A,B,C). The following data relate to the three products.

Required: (1) Calculate the contribution per labor minute for each product. (2) Determine the best product mix. Assume there are fiveemployees, and given time for breaks, training, and regular meetings, there are a total of 2,200 minutes available per day.

73. The management accountant at the Huang Manufacturing Company has collected the following data in preparation for a life cycle analysis on one of its products, a leaf blower:

Required: Determine what stage of the sales life cycle the leaf blower is in.

^74.Warrenton Industries manufactures hydraulic components for large automated machine tools. Myles English, the Vice President for Marketing, has concluded from his market analysis that sales are dwindling for one of the firm's products main products, a hydraulic valve, because of aggressive pricing by competitors. Warrenton's product sells for $525 whereas the competition's comparable part is selling in the $425 range. Mr. English has determined that a price drop to $400 is necessary to regain market share and annual sales of 1,000 units.

Cost data based on sales of 1,000 valves:

Required:

(1) Calculate the current cost and profit per unit.

(2) How much of the current cost per unit is attributable to non-value added activities?

(3) Calculate the new target cost per unit for a sales price of $400 if the profit per unit is maintained.

(4) What strategy do you suggest for Warrenton to attain the target cost calculated in part (3)?

75. Gail Johnston is the CFO of Lancet Technologies, a manufacturer of parts and supplies for the cable TV industry. Gail has developed an analysis of the profitability of the firm's two main product lines, cable hardware, and cable supplies. Based on the analysis, she concludes that cable hardware is the most profitable of the firm's product lines.

Required: (1) Explain why Gail may be wrong in her assessment of the relative performances of the two product lines. (2) Suppose that80 percent of the R & D and selling expenses are traceable to Hardware line. Prepare life-cycle income statements for each product and calculate the return on sales. What does this tell you about the importance of accurate life-cycle costing?

76. Jamestown Furniture Co. is a small, but fast-growing manufacturer of living room furniture. Its two principal products are end tables and sofas. There are five processes in the manufacturing at Jamestown: Cutting the lumber, cutting the fabric, sanding, staining, and assembly. Jamestown has one employee working in fabric cutting and one employee working in staining. These are relatively skilled workers, and could be replaced only with some difficulty. The cutting and sanding operations are performed by two workers each, and while there is some skill to these operations, it is less critical than for staining and for fabric cutting. Assembly is the least skill-based process, and is currently done by one full-time employee and a group of part-timers who provide a total of 175 minutes of working time per week. The other employees work a 40-hour week, with 5 hours off for breaks, training, and personal time. Assume a four week month, and that by prior agreement, any of the employees can be switched from one task to another. The current demand for Jamestown's products and sales prices are provided below. Jamestown expects demand to increase significantly in the coming months (this depends on whether it is able to successfully obtain the order it is negotiating to get from a motel chain). The materials cost for the table is $150 and $275 for the sofa.

The time required for each activity and the total time available are shown below.

Required: What is the most profitable production plan for Jamestown? Explain your answer with supporting calculations.

77. PureSwing Golf, Inc. manufactures swing analyzer systems for golf instructors. Two of its systems, Pure1000 and the Pure5000 have these characteristics:

The Pure1000 sells for $1,000 installed and the Pure5000 sells for $1,750 installed.

Required: 1. What are the current profit margins on both systems? 2. PureSwing's management believes that it must drop the price on thePure1000 to $800 and on the Pure5000 to $1,450 to remain competitive in the market. Recalculate profit margins for both products at these price levels. 3. Describe two ways that PureSwing could cut its costs to get the profit margins back to their original levels.

78. PharmCo Manufacturing operates a contract manufacturing plant in London, England. The plant produces a variety of pharmaceutical drugs for companies around the world. Cycle time is a critical success factor for PharmCo, which has developed a number of measures of manufacturing speed. The company has studied the matter and found that competitive contract manufacturers have manufacturing cycle efficiency (MCE) time of about 40 percent. When last measured, PharmCo's MCE was 35 percent. At PharmCo, cycle time is defined as

beginning at the point when the order taking is complete.

Some key measures from the most recent month's production, averaged over all the jobs during the period, are as follows:

Required: Determine the MCE time for the most recent month. What can you infer from the MCE time that you calculated?

79. AirTravel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The component is purchased by OEM (original equipment manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000, and sales volume averages 2,000 units per year. Recently, AirTravel's major competitor lowered the price of the equivalent part to $9,500. The market was very competitive, and AirTravel realized it had to meet the new price or lose significant market share. The controller assembled the following data for the most recent year:

Cost and Usage for Production of 2,000 Units:

Required: Calculate the target cost for maintaining current market share and profitability.

80. Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI). Customers can rent a motorcycle in one city and then return it at one of three designated cities. Following are the costs involved in providing this service each year:

Motorcycle Rentals Inc. began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to last five more years, at which time a new fleet will be purchased. Jeremy is satisfied with the steady average rentals per year of 10,000. Required: 1. What price should Jeremy charge per rental for the business to make a twenty percent life-cycle profit?

2. What price should Jeremy charge per rental for the business to make a before-tax thirty percent return on investment?

81.

Excel Manufacturing has received an order for 5,000 units of its only product, Excel-A. Excel is considering a variety of methods to determine the price of the order. Some key information about Excel follows:

Required: 1. Determine the price using the markup of 40% of full manufacturing costs.

2. Determine the price using a 20% markup on life-cycle costs.

3. Determine the price assuming a desired 50% gross margin percentage.

4. Determine the price assuming a desired 30% return on life-cycle costs.

5. Determine the price assuming a desired 20% return on investment

82. Marchand's Restaurant had developed an excellent reputation in recent years for its price, menu, and atmosphere. The restaurant is now completing a strategic analysis to determine whether it should make adjustments in its menu, pricing, or wait service, to better meet customer needs and to become more competitive. Marchand's has chosen to use Quality Function Deployment (QFD) to analyze customer preferences and its cost structure. The analysis focuses on costs that can be managed in the short term, and therefore excludes facility related costs.

The data that Marchand's has collected so far includes information about customer preferences (Marchand's surveyed customers regarding their preferences for taste, comfort and atmosphere) and the unit cost of the three key elements of its service: food preparation, wait staff, and food ingredients.

Next, Marchand completed an analysis, using the expertise of its managers, wait staff and kitchen staff, to determine the contribution of each of the three elements of its service to satisfying the three components of customer satisfaction.

Required: Determine which of the three cost elements (food preparation, wait staff, and food ingredients) should be given increased ordecreased emphasis based on a QFD analysis. Explain your answer with appropriate calculations.

83. High Point Furniture manufactures a high-quality dining table, which is offered in both oak and walnut. The demand for the tables is 800 units for the oak table and 1500 for the walnut table. The tables are priced at $495 and $995 for the oak and walnut tables, respectively. The materials cost is $210 for the oak table and $430 for the walnut table. In addition, High Point has the following manufacturing information for the four manufacturing processes (receiving, preparation, assembly, and finishing), showing the amount of time (in minutes) required for each table for each process, and the total minutes of time available for each process.

Required: 1. Which process(es), if any, are constraints for the current level of demand?

2. Given any constraints identified in part (1) above, determine the best production and sales plan for the two types of tables.

3. What is the overall contribution from the production plan you determined in part (2) above?

84. Life Cycle Costing Income Statements

The following revenue and cost data are for Turner Manufacturing's two radial saws. The L40 is for the commercial market and the L50 is for industrial customers. Both products are expected to have three-year life cycles.

Required: 1. How would a product life-cycle income statement differ from the above income statements? 2. Prepare a three-year life-cycle income statement for both products. Which product appears to be more profitable and why?

Prepare a schedule showing each cost category as a percentage of total annual costs. What do you think this indicates about the profitability of each product over the three-year life cycle?