MBA 550-Hawking’s Bagels Patricia Hawking is considering opening a small

QUESTION 1
1. Hawking’s Bagels
Patricia Hawking is considering opening a small bagel shop in University City. Her initial
research has discovered the following information. Fixed costs (mostly the costs of the facility
and salaries), excluding advertising will cost $50,000 per month, and provide her with a capacity
to serve 60,000 customer-visits per month. Due to the size of the facility, increasing capacity
beyond that will be extremely difficult. Each customer-visit will generate average revenues of
$4.50, and incur average direct material costs of $2.50.
Based on the above information, what is Hawking’s breakeven point (in terms of customer-visits per
month)? __________ Is this feasible? ___________
QUESTION 2 1. Hawking’s Bagels
Patricia Hawking is considering opening a small bagel shop in University City. Her initial
research has discovered the following information. Fixed costs (mostly the costs of the facility
and salaries), excluding advertising will cost $50,000 per month, and provide her with a capacity
to serve 60,000 customer-visits per month. Due to the size of the facility, increasing capacity
beyond that will be extremely difficult. Each customer-visit will generate average revenues of
$4.50, and incur average direct material costs of $2.50. Based on the above information, what is the monthly profit of Hawking’s Bagels in February assuming it
serviced 20,000 customer-visits?
QUESTION 3
1.
Patricia Hawking is considering opening a small bagel shop in University City. Her initial research
has discovered the following information. Fixed costs (mostly the costs of the facility and salaries),
excluding advertising will cost $50,000 per month, and provide her with a capacity to serve 60,000
customer-visits per month. Due to the size of the facility, increasing capacity beyond that will be
extremely difficult. Each customer-visit will generate average revenues of $4.50, and incur average
direct material costs of $2.50.
Assuming that Hawking’s cannot increase customer-visits in the short-run, what increase in average
customer revenue is necessary in order to break-even?
1. QUESTION 4
Patricia Hawking is considering opening a small bagel shop in University City. Her initial research
has discovered the following information. Fixed costs (mostly the costs of the facility and salaries),
excluding advertising will cost $50,000 per month, and provide her with a capacity to serve 60,000
customer-visits per month. Due to the size of the facility, increasing capacity beyond that will be
extremely difficult. Each customer-visit will generate average revenues of $4.50, and incur average
direct material costs of $2.50.
Preliminary market research suggests that without any advertising, Hawking’s mere presence should
generate a customer base of 20,000 visits per month. It also suggests that Hawking’s can increase that
customer base by running up to 60 advertisements in the local papers each month. Assume that each
advertisement run during the month would increase customer demand for the month by 1% over the
no-advertising base. For example, with 10 advertisements in the current month, there would be a total
of 22,000 customer visits this month. For simplicity, assume that the ads have NO value beyond the month in which they run and that each advertisement costs $150. How many advertisements per
month should Hawkings run in order to break-even?
QUESTION 5
1. In September 2005, Apple Computers unveiled a new version of smaller, sleeker iPods
(i.e., digital music players). The new iPod-Nano holds up to 1,000 songs (4-GB) and works with
Macs and PCs. The Nano has a color display and is available at conventional retailers in the
United States for $249. Apple also offers a 20-GB, standard iPod for $299. Many potential
customers have said they were disappointed that the Nano cost only
$50 less than the standard iPod which has more than five times the
storage capacity. Nonetheless, the media hype for the Nano has
already exceeded expectations.
A new division of Apple will manufacture only the Nano (4-GB) and
the Standard (20-GB) iPods. The critical part of the manufacturing
process uses a single machine that produces the color displays on
both types of iPods. Traditionally Apple has made production and
marketing decisions based on product profitability. The planned
annual financials for each product are presented in the table below.
(All financial data in 000's)
Sales
Materials
Direct Labor
Variable Overhead Expenses ($26,000 total)
Fixed Overhead Expenses (32,000 total)
Selling and Admin Expenses (all fixed)
Units to be Produced and Sold (000's) iPod-Nano
$49,800
$17,000
$6,000
?
?
$3,000 iPodStandard
$83,720
$35,000
$10,000
?
?
$1,000 200 280 Currently, Apple allocates variable overhead expenses based on direct materials cost and allocates fixed
overhead expenses based on direct labor cost. Using this allocation system, what is the cost of
producing the iPod-Nano and the iPod-Standard? What is the profitability of each product?
QUESTION 6
1. In September 2005, Apple Computers unveiled a new version of smaller, sleeker iPods
(i.e., digital music players). The new iPod-Nano holds up to 1,000 songs (4-GB) and works with
Macs and PCs. The Nano has a color display and is available at conventional retailers in the
United States for $249. Apple also offers a 20-GB, standard iPod for $299. Many potential
customers have said they were disappointed that the Nano cost only
$50 less than the standard iPod which has more than five times the
storage capacity. Nonetheless, the media hype for the Nano has
already exceeded expectations.
A new division of Apple will manufacture only the Nano (4-GB) and
the Standard (20-GB) iPods. The critical part of the manufacturing process uses a single machine that produces the color displays on
both types of iPods. Traditionally Apple has made production and
marketing decisions based on product profitability. The planned
annual financials for each product are presented in the table below.
(All financial data in 000's)
Sales
Materials
Direct Labor
Variable Overhead Expenses ($26,000 total)
Fixed Overhead Expenses (32,000 total)
Selling and Admin Expenses (all fixed)
Units to be Produced and Sold (000's) iPod-Nano
$49,800
$17,000
$6,000
?
?
$3,000 iPodStandard
$83,720
$35,000
$10,000
?
?
$1,000 200 280 Apple wants to reallocate the existing overhead costs to products using recently collected
information with respect to key activities and activity cost drivers. They have the following
three activities and other information Activity Costs
Assembling Components
Setup Production Line
Repair Machines Total Activity
Costs (000's)
$36,000
$15,000
$7,000 Additional Information about Production
Total
iPod Nano iPod Standard
Number of Production Runs
1,000
750
250
Number of Setup Hours
8,000
5,000
3,000
Number of Machine Hours
35,000
25,000
10,000
Number of Hourly Employees
160
40
120
Apple has learned the following:
·
The cost of assembling components is incurred each time a new production run occurs. The cost seems
unrelated to the number of components within each batch.
·
The cost of setting up the machine varies depending on the product and specific production run. The cost
seems to relate to the time it takes to setup the machine.
·
Apple has to repair the machines routinely based on the hours that the machine is being used. Compute the amount of overhead cost allocated to each product and the profitability of each product
using the activity based costing approach. 1. QUESTION 7
What do you learn from the ABC analysis? How can Apple change in order to improve the
profitability of its iPods? Path: p
Words:0 QUESTION 8 1.
(All financial data in 000's)
Sales
Materials
Direct Labor
Variable Overhead Expenses ($26,000 total)
Fixed Overhead Expenses (32,000 total)
Selling and Admin Expenses (all fixed)
Units to be Produced and Sold (000's)
2. iPod-Nano
$49,800
$17,000
$6,000
?
?
$3,000 iPodStandard
$83,720
$35,000
$10,000
?
?
$1,000 200 280 Should Apple analyze the Selling and Admin costs using an ABC system? Why or why not? Path: p
Words:0 1. QUESTION 9
For this question, assume that Apple is considering eliminating either the iPod-Nano or the iPodStandard. Explain two important factors that Apple should consider in a decision to eliminate either one
of these products. Your answer should include at least one quantitative factor but does not need to
contain any calculations. Path: p
Words:0 QUESTION 10
1. “True Religion Brand Jeans (TR) was established in December of 2002 to take denim in a
refreshing new direction.” TR produces both regular jeans and “distressed” (or broken in)
jeans. Regular jeans and distressed jeans are exactly the same, except that the distressed jeans
require machine time on the ageing machines to give them the distressed look. Regular jeans
spend no time on the ageing machine.
TR uses a standard costing system. TR splits all costs into four cost pools: direct materials,
which represent the cost of denim used to make the jeans, variable overhead for the standard
machine, which includes all other variable costs except those related to the ageing machine, variable overhead costs related to the ageing machine and fixed overhead costs. Overhead is
allocated based on the number of machine minutes used to produce the jeans. All machines
are considered identical for cost allocation purposes (so one minute on a sewing machine is
equal to one minute on an “ageing” machine). For calendar year 2007, True Religion expects to produce 120,000
pairs of regular jeans and 24,000 pairs of distressed jeans (for a
total of 144,000 pairs of jeans). They hoped to sell the regular jeans
for $80 per pair and the distressed jeans for $125 per pair. The
budgeted cost was:
Direct Material Costs (288,000 yards of denim
@$3/yard)
$ 864,000
Variable Overhead Costs – Standard
machine Variable Overhead Costs – Ageing
machine
Fixed Overhead
Costs
00
Total Budgeted
Cost
00 518,400 21,600
1,620,0
$3,024,0 The above estimates are based on a total of 1,800,000 machine
minutes (including 72,000 machine minutes for the ageing
machines).
During 2007, True Religion actually produces 125,000 pairs of regular jeans and 22,000 pairs of
distressed jeans (for a total of 147,000 pairs of jeans). All jeans produced were sold, the
regular jeans sold for $75 per pair and the distressed jeans sold for $125 per pair. Total costs
were $2,951,790, which included $895,230 in direct material and $535,040 in variable overhead
costs ($21,400 related to the ageing machine and $513,640 related to the standard machine).
Production required 308,700 yards of denim and 1,672,000 machine minutes (including 55,000
machine minutes for the ageing machines).
a. How many minutes does the company expect regular jeans to spend in the machines?
b. How many minutes does the company expect distressed jeans to spend in the machines (in total)?
c. How much is allocated per minute in the machine for Standard Machine Variable Cost?
d. How much is allocated per minute in the machine for Ageing Machine Variable Cost?
e. What is the total expected cost allocated to one pair of regular jeans?
f. What is the total expected cost allocated to one pair of distressed jeans? Path: p
Words:0 QUESTION 11
1. “True Religion Brand Jeans (TR) was established in December of 2002 to take denim in a
refreshing new direction.” TR produces both regular jeans and “distressed” (or broken in)
jeans. Regular jeans and distressed jeans are exactly the same, except that the distressed jeans
require machine time on the ageing machines to give them the distressed look. Regular jeans
spend no time on the ageing machine.
TR uses a standard costing system. TR splits all costs into four cost pools: direct materials,
which represent the cost of denim used to make the jeans, variable overhead for the standard
machine, which includes all other variable costs except those related to the ageing machine,
variable overhead costs related to the ageing machine and fixed overhead costs. Overhead is
allocated based on the number of machine minutes used to produce the jeans. All machines
are considered identical for cost allocation purposes (so one minute on a sewing machine is
equal to one minute on an “ageing” machine). For calendar year 2007, True Religion expects to produce 120,000
pairs of regular jeans and 24,000 pairs of distressed jeans (for a
total of 144,000 pairs of jeans). They hoped to sell the regular jeans
for $80 per pair and the distressed jeans for $125 per pair. The
budgeted cost was:
Direct Material Costs (288,000 yards of denim
@$3/yard)
$ 864,000
Variable Overhead Costs – Standard
machine Variable Overhead Costs – Ageing
machine
Fixed Overhead
Costs
00
Total Budgeted
Cost
00 518,400 21,600
1,620,0
$3,024,0 The above estimates are based on a total of 1,800,000 machine
minutes (including 72,000 machine minutes for the ageing
machines).
During 2007, True Religion actually produces 125,000 pairs of regular jeans and 22,000 pairs of
distressed jeans (for a total of 147,000 pairs of jeans). All jeans produced were sold, the
regular jeans sold for $75 per pair and the distressed jeans sold for $125 per pair. Total costs
were $2,951,790, which included $895,230 in direct material and $535,040 in variable overhead
costs ($21,400 related to the ageing machine and $513,640 related to the standard machine).
Production required 308,700 yards of denim and 1,672,000 machine minutes (including 55,000
machine minutes for the ageing machines). Create a flexible budget for True Religion based on the actual results during 2007 (including the sales
number). Path: p
Words:0 QUESTION 12
1. For calendar year 2007, True Religion expects to produce
120,000 pairs of regular jeans and 24,000 pairs of distressed jeans
(for a total of 144,000 pairs of jeans). They hoped to sell the regular
jeans for $80 per pair and the distressed jeans for $125 per
pair. The budgeted cost was:
Direct Material Costs (288,000 yards of denim
@$3/yard)
$ 864,000
Variable Overhead Costs – Standard
machine Variable Overhead Costs – Ageing
machine
Fixed Overhead
Costs
00
Total Budgeted
Cost
00 518,400 21,600
1,620,0
$3,024,0 The above estimates are based on a total of 1,800,000 machine
minutes (including 72,000 machine minutes for the ageing
machines).
During 2007, True Religion actually produces 125,000 pairs of regular jeans and 22,000 pairs of
distressed jeans (for a total of 147,000 pairs of jeans). All jeans produced were sold, the
regular jeans sold for $75 per pair and the distressed jeans sold for $125 per pair. Total costs
were $2,951,790, which included $895,230 in direct material and $535,040 in variable overhead
costs ($21,400 related to the ageing machine and $513,640 related to the standard machine).
Production required 308,700 yards of denim and 1,672,000 machine minutes (including 55,000
machine minutes for the ageing machines).
Analyze the difference between the original budgeted sales number and the actual sales
number for regular jeans. Quantitatively disentangle the reasons for the difference (i.e., sales volume
variance and sales price variance).What could have caused the sales volume variance (qualitatively)?
(provide at least two possible reasons) Path: p
Words:0 QUESTION 13
1. For calendar year 2007, True Religion expects to produce
120,000 pairs of regular jeans and 24,000 pairs of distressed jeans
(for a total of 144,000 pairs of jeans). They hoped to sell the regular
jeans for $80 per pair and the distressed jeans for $125 per
pair. The budgeted cost was:
Direct Material Costs (288,000 yards of denim
@$3/yard)
$ 864,000
Variable Overhead Costs – Standard
machine Variable Overhead Costs – Ageing
machine
Fixed Overhead
Costs
00
Total Budgeted
Cost
00 518,400 21,600
1,620,0
$3,024,0 The above estimates are based on a total of 1,800,000 machine
minutes (including 72,000 machine minutes for the ageing
machines).
During 2007, True Religion actually produces 125,000 pairs of regular jeans and 22,000 pairs of
distressed jeans (for a total of 147,000 pairs of jeans). All jeans produced were sold, the
regular jeans sold for $75 per pair and the distressed jeans sold for $125 per pair. Total costs
were $2,951,790, which included $895,230 in direct material and $535,040 in variable overhead
costs ($21,400 related to the ageing machine and $513,640 related to the standard machine).
Production required 308,700 yards of denim and 1,672,000 machine minutes (including 55,000
machine minutes for the ageing machines).
Please analyze the variance in the cost of direct material? Disentangle the various reasons for the
variance and explain each piece. Path: p
Words:0 QUESTION 14
1. For calendar year 2007, True Religion expects to produce
120,000 pairs of regular jeans and 24,000 pairs of distressed jeans
(for a total of 144,000 pairs of jeans). They hoped to sell the regular
jeans for $80 per pair and the distressed jeans for $125 per
pair. The budgeted cost was:
Direct Material Costs (288,000 yards of denim
@$3/yard)
$ 864,000
Variable Overhead Costs – Standard
machine Variable Overhead Costs – Ageing
machine
Fixed Overhead
Costs
00
Total Budgeted
Cost
00 518,400 21,600
1,620,0
$3,024,0 The above estimates are based on a total of 1,800,000 machine
minutes (including 72,000 machine minutes for the ageing
machines).
During 2007, True Religion actually produces 125,000 pairs of regular jeans and 22,000 pairs of
distressed jeans (for a total of 147,000 pairs of jeans). All jeans produced were sold, the
regular jeans sold for $75 per pair and the distressed jeans sold for $125 per pair. Total costs
were $2,951,790, which included $895,230 in direct material and $535,040 in variable overhead
costs ($21,400 related to the ageing machine and $513,640 related to the standard machine).
Production required 308,700 yards of denim and 1,672,000 machine minutes (including 55,000
machine minutes for the ageing machines).
Prepare a budget for 2008 sales revenue. Suppose that prices of regular jeans will remain the same as
the 2007 actual price and the price of the distressed jeans will increase by 10%. The demand for
distressed jeans will decrease by 10% while the demand for regular jeans will increase by 5%. Path: p
Words:0 QUESTION 15
1. Five-Spurs Company specializes in manufacturing customermade office desks. The company comprises two primary divisions,
Machining and Assembly. Machining produces the unfinished wood
components of the desk, while Assembly assembles, paints and polishes the final product. A market exists for the unfinished wood
components and for the final product. Assume that Machining’s
capacity for this product is 1,000 units per month and sales to the
intermediate market are currently 800 units per month. Both selling
prices will maintain indefinitely (i.e., $200 for the intermediate
product and $300 for the final product) – external prices will not be
lowered even if excess capacity exists. Each division has been
designated a profit center. The following data are available to each
division:
Estimated average selling price for the final
product
$300
Long-run average selling price for intermediate
product
$200
Incremental costs for completion in
Assembly
$150
Incremental costs in
Machining
$120
The manager of Assembly has made the following calculations: product
(market) Average Selling Price for final $300 Transferred-in costs $200 Incremental costs for
completion
product Contribution (loss) on $150 $350
($50) a) Should the 200 remaining units in Machining be transferred to Assembly? ___________ At what transfer price? Why?
b) If Assembly wants 300 units. Would the suggested price from #1 be different? If so, how would it
change? Path: p
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