Ch 16 Assignment D Week 6

Ch 16 Assignment D Week 6

Make or Buy Decision

1. Talk Company manufactures 10,000 telephones per year. The full manufacturing costs per telephone are as follows:

Direct materials	$ 4
Direct labor	16
Variable manufacturing overhead	10
Average fixed manufacturing overhead	11
Total	$41

The Telecom America has offered to sell Talk Company 10,000 telephones for $34 per unit. If Talk Company accepts the offer, $25,000 of fixed overhead will be eliminated.

Decide whether or not Talk Company should make or buy the phones? Prove your case.

Using Limited Resources

2. Northern Production Company has 200 labor-hours available. There is no limit on machine-hours. Northern can sell all of Y it wants, but it can only sell 45 units and 20 units of X and Z, respectively.

	Product X	Product Y	Product Z
Contribution margin per unit	$30	$20	$24
Labor-hours per unit	4	5	4
Machine-hours per unit	10	8	2

A ) What is the contribution margin per labor-hour for product Y?

B) To maximize profits, how many units of each product should Northern produce?

Outsourcing Decision

3. The Coil Company manufactures 10,000 rolls of cable each period. The cable is used as an input for producing several other products that Coil manufactures. The full manufacturing costs for a batch of 100 rollsof cable are:

Direct materials	$170
Direct labor	100
Variable manufacturing overhead	100
Average fixed manufacturing overhead	175
Total	$545

The fixed manufacturing overhead is comprised of depreciation expenses related to prior investments in facilities and equipment that are used in the manufacturing of the cable. These assets have no other use than for the manufacturing of the cable. An outside supplier has offered to sell Coil the 10,000 rolls of cable necessary to meet production needs this period for a lump-sum of $45,000.

If Coil accepts this outside supplier’s offer, how much better or worse off will the company be?

Joint Costs

4. The Kirsten Company uses a joint process to produce products A, B, C, and D. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are $65,000. Other relevant data are as follows:

Product	Sales Value At Split-Off	Additional Costs of Processing	Sales Value of Final Product
A	$15,000	$18,000	$ 45,000
B	27,000	15,000	40,000
C	20,000	25,000	30,000
D	13,000	11,000	25,000
	$75,000	$69,000	$140,000

Calculate the effect on profits of processing Product A further beyond the split-off point.

Allocating Limited Resources

5. A limitation of 3,000 machine-hours per week prevents Manhattan Manufacturing Company from meeting the sales demands for its products. The product information is as follows:

	R1	R2	R3	R4
Unit selling price	$900	$600	$350	$600
Unit variable costs	- 600	- 250	- 200	- 300
Unit contribution margin	$300	$350	$150	$300
Machine-hours per unit	20	20	20	30

Assuming unlimited demand for each product, determine what is the best short-run profit maximizing strategy?