#4 11/9/2015 Module 3 Connect Assignment AC 201: QL Fall 2015 Jessica Pena Modul
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#4
11/9/2015 Module 3 Connect Assignment AC 201: QL Fall 2015 Jessica Pena Module 3 Connect Assignment instructions I help value: 2.50 points Problem 6-30A Comprehensive problem including special order, outsourcing, and segment elimination decisions LO 6-2, 6-3, 6-4 Lang Corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The company's chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment's operating activities. The relevant range for the production and sale of the calculators is between 35,000 and 67,000 units per year. Revenue (38,000 units $9) Unit-level variable costs $ 342,000 Materials cost (38,000 x $3) Labor cost (38,000 x $1) Manufacturing overhead (38,000 x $0.60) Shipping and handling (38,000 x $0.28) Sales commissions (38,000 x $1) (114,000) (38,000) (22,800) (10,640) (38,000) Contribution margin Fixed expenses 118,560 Advertising costs Salary of production supervisor Allocated companywide facility-level expenses (23,000) (63,000) (76,000) Net loss $ (43,440) (Consider each of the requirements independently.) Required: a-1. A large discount store has approached the owner of Lang about buying 6,000 calculators. It would replace The Math Machine's label with its own logo to avoid affecting Lang's existing customers Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $5.20 per calculator. Calculate the contribution margin from the special order.(Negative amount should be indicated by a minus sign.) Contribution margin (loss) a-2. Should Lang accept the special order? es b-1. Lang has an opportunity to buy the 38,000 calculators it currently makes from a reliable competing manufacturer for $5.90 each. The product meets Lang's quality standards. Lang could continue to use its own logo, advertising program, and sales force to distribute the products. Should Lang buy the calculators or continue to make them? Bu O Make b-2. Calculate the total cost for Lang to make and buy the 38,000 calculatons http:/lezto.mheducation.com/hm.tpx 1/2Explanation / Answer
a1) No of Calculators required 6,000 Inputs ( Per Unit) Material 3.00 Labor 1.00 Manufacturing OH 0.60 Shipping and Handling 0.28 Sales Commission 0.00 (In USD) Sale Priceper calcualator 5 Total Revenue 31,200 Direct Cost Material 18,000 Labor 6,000 Manufacturing OH 3,600 Shipping and Handling 1,680 Sales Commission 0 Total Direct Cost 29,280 Contribution 1,920 (Total Revenue- Total Cost) Fixed Cost No need to factor Fixed cost as total usage capacity (38,000+6,000) is less than installed capacity (67,000)and already factored in given p&L a2) Since contribution is positive, we can accept the order b1) Manufacture Cost No of Units 38,000 Material 114,000 Labor 38,000 Manufacturing OH 22,800 Shipping and Handling 10,640 Total Variable Cost (Manufacturing) 185,440 If purchased from Out side 5.90 Per unit 224,200 Benefit Buy option 224,200 Manufacturing cost 185,440 Benefit 38,760 Since manufactuing cost is less than Buying option, its better to manufacture instead of buying from out side Ps: Since fixed cost is same for both the options, so not considered for comparison purpose Manufacturing Buy b2) Total Cost Variable Cost ( from above calculations) 185,440 224,200 b3) If volume is increased to 67,000 Units Units 67,000 Material 201,000 Labor 67,000 Manufacturing OH 40,200 Shipping and Handling 18,760 Sales Commission ($ 1per unit) 67,000 Total Variable Cost (Manufacturing) 393,960 Buy option 348,400 Since manufactuing cost is more than Buying option, its better to buy instead of manufacturing Ps: Since fixed cost is same for both the options, so not considered for comparison purpose C1) Operating Profit Revenue 342,000 Material Cost 114,000 Labour cost 38,000 Manufactuing Oh 22,800 Shipping and Handling 10,640 Sales Commission 38,000 Total Cost 223,440 Contribution =(Revenue - Variable cost) 118,560 C2) Since contribution is positive , its better to continue business
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