Harron Productions manufactures industrial electric motors used by appliance com

Question

Harron Productions manufactures industrial electric motors used by appliance companies. In the past year, the company has experienced severe excess capacity due to foreign competition. The company is currently bidding on a potential order from Kenmore Elite for 5,000 Model 44 motors. The estimated cost of each motor is given in the table below Harron applies manufacturing overhead using a pre-determined rate of S5.50 per direct labor dollar. This rate is based on estimated annual overhead of $2,640,000 and estimated annual direct labor of $480,000. The estimated overhead is composed of 51,104,000 of variable costs and $1,536,000 of fixed costs. The largest component of fixed cost relates to charges for depreciation of plant and equipment. Mfq. Cost Model 44 Direct material Direct labor (.667 hours) Mfg. Overhead Total 40.00 28.00 110.00 178.00 0 Answers 9Based on the available information, what is the incremental cost of producing 1 unit 0 of the Model 44 motor? 2 What is the incremental profit if Harron wins the 5,000 unit order by bidding $160 per 3 motor? This refers to the profit for the special order as a whole Harron is considering shutting down part of their facility - this would save $350k in annual fixed costs, but not allow them to fill the Kenmore Elite order. What unit price must 7 Harron charge to justify accepting the Kenmore order under these conditions? 9 Kenmore is unwilling to pay more than $160 per unit but would consider increasing it's order 0 to 7,500 units. Under these circumstances how profitable would the Kenmore order be? 2 Given the information stated above and assuming a normal selling price of $230 per unit, 3 what is the break-even number of units for the Model 44 motor? lanore the special order for 4 the purposes of this calculation

Explanation / Answer

Manufacturing Overheads              110.00 Recover Rate                   5.50 No Of Hours                 20.00 Variable Cost 11,04,000.00 Total No Of hours     4,80,000.00 Variable Manufacturing Cost pH                   2.30 Variable Manufacturing Cost                   46.00 Other Variable Costs Direct Material 40 Labour 28 Total Variable Cost              114.00 Incremental cost              114.00 Bid Price              160.00 Incremental Cost              114.00 Incremental Contribution                 46.00 No Of Units           5,000.00 Project Profit     2,30,000.00 Saving By shutting Down           3,50,000 No Of Units                 5,000 Minimum PU contribution                       70 Incremental Cost                    114 Sales Price to Justify the Order                    184 Bid Price              160.00 Incremental Cost              114.00 Incremental Contribution                 46.00 No Of Units           7,500.00 Project Profit     3,45,000.00 Selling Price                    230 Variable Cost                    114 Contribution PU                    116 Fixed Cost        15,36,000 Break Even              13,241

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