Wayne Windows, Inc. is a leading producer of vinyl replacement windows. The comp
ID: 2463212 • Letter: W
Question
Wayne Windows, Inc. is a leading producer of vinyl replacement windows. The company’s growth strategy focuses on developing domestic markets in large metropolitan areas. The company operates a single manufacturing plant in Kansas City with an annual capacity of 500,000 windows. Current production is budgeted at 400,000 windows per year, a quantity that has been constant over the past three years. Based on the budget, the accounting department has calculated the following unit costs for the windows:
Direct materials $37
Direct labor 17
Manufacturing overhead 23
Selling and administrative 14
Total unit cost $91
The company’s budget includes $5,250,000 in fixed overhead and $3,230,000 in fixed selling and administrative expenses. The windows sell for $142 each. A 2% distributor’s commission is included in the selling and administrative expenses.
Calculate variable overhead per unit and variable selling and administrative costs per unit. (Round answers to 2 decimal places, e.g. 15.25.)
Variable overhead per unit $
Variable selling and administrative costs per unit $
Nordic Vistas, Norway’s second largest homebuilder, has approached Wayne with an offer to buy 78,900 windows during the coming year. Given the size of the order, Nordic has requested a 40% volume discount on Wayne’s normal selling price. Should Wayne grant Nordic’s request? (Round answer to 0 decimal places, e.g. 8,971.)
Total contribution from special order $
Return to the original data. Ryster Remodeling has just signed a contract with the state government to replace the windows in low-income housing units throughout the state. Ryster needs 125,000 windows to complete the job and has offered to buy them from Wayne at a price of $105 per window. Ryster will pick up the windows at Wayne’s plant, so Wayne will not incur the $2 per window shipping charge. In addition, Wayne will not need to pay a distributor’s commission, since the windows will not be sold through a distributor.
Calculate the contribution from special order, contribution from regular sales and the net contribution from special order.
Contribution from special order $
Contribution lost from forgone regular sales $
Net contribution from special order $
If Wayne decides to accept Ryster’s offer, it will need to find an additional 25,000 windows to meet both the special order and normal sales. Clear-Vue Windows has offered to provide them to Wayne at a price of $120 per window. Clear-Vue will deliver the windows to Wayne, and Wayne would then distribute them to its customers. (Assume that windows are sold at $142 each.)
Calculate total contribution from outsourcing.
Total contribution from outsourcing $
Should Wayne outsource the production of the extra windows to Clear-Vue?
Wayne Windows, Inc. is a leading producer of vinyl replacement windows. The company's growth strategy focuses on developing domestic markets in large metropolitan areas. The company operates a single manufacturing plant in Kansas City with an annual capacity of 500,000 windows. Current production is budgeted at 400,000 windows per year, a quantity that has been constant over the past three years. Based on the budget, the accounting department has calculated the following unit costs for the windows: The company's budget includes $5,250,000 in fixed overhead and $3,230,000 in fixed selling and administrative expenses. The windows sell for $142 each. A 2% distributor's commission is included in the selling and administrative expenses. Calculate variable overhead per unit and variable selling and administrative costs per unit. (Round answers to 2 decimal places, e.g. 15.25.) Nordic Vistas, Norway's second largest homebuilder, has approached Wayne with an offer to buy 78,900 windows during the coming year. Given the size of the order, Nordic has requested a 40% volume discount on Wayne's normal selling price. Should Wayne grant Nordic's request? (Round answer to 0 decimal places, e.g. 8,971.) Return to the original data. Ryster Remodeling has just signed a contract with the state government to replace the windows in low-income housing units throughout the state. Ryster needs 125,000 windows to complete the job and has offered to buy them from Wayne at a price of $105 per window. Ryster will pick up the windows at Wayne's plant, so Wayne will not incur the $2 per window shipping charge. In addition, Wayne will not need to pay a distributor's commission, since the windows will not be sold through a distributor. Calculate the contribution from special order, contribution from regular sales and the net contribution from special order. If Wayne decides to accept Ryster's offer, it will need to find an additional 25,000 windows to meet both the special order and normal sales. Clear-Vue Windows has offered to provide them to Wayne at a price of $120 per window. Clear-Vue will deliver the windows to Wayne, and Wayne would then distribute them to its customers. (Assume that windows are sold at $142 each.) Calculate total contribution from outsourcing. Should Wayne outsource the production of the extra windows to Clear-Vue?Explanation / Answer
Variable Overhead per unit
Direct materials- $37
Direct labor- $17
Manufacturing Overhead- $23
Total - $77
Variable selling and administrative costs per unit
Selling and administrative- $14
2% Distributor Commission= 142*2%= $2.84
Total = $16.84
The company has a spare annual capacity of 100,000 windows and hence can accept the offer without affecting its normal sales
If 40% discount is given
Selling Price = 142*60%= $85.2
Variable cost= 77+14(Distributor commission would not be there)= $91
Contribution per window=-5.8 $
Total contribution= 78,900*(5.8)= ($ 457,620)
Contribution from special order
Selling Price= $105
Less: Variable overhead= $77
Less: Selling and administrative= 16.84-2.84-2=$12
Contribution from 1 window= $16
Total contribution= 16*125000= $2,000,000
Contribution lost
100,000 was spare capacity. Because of new order contribution of 25,000 units is lost
Contribution lost= 25,000*(142-77-16.84) = $ 1,204,000
Net Contribution= $796,000
Contribution from outsourcing
Selling Price= 142
Less: purchase price= 120
Less: administrative and selling expenses= $16.84
Contribution=25,000*5.16= $129,000
Wayne should outsource the production of extra windows to clear-vue
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