Identifying and managing unused capacity (continuation of 13-31) refer to the information for Dransfield Company in 13-31.

1. Calculate the amount and cost of unused capacity for:

a. Manufacturing

b. Sales and customer service

c. Advertising

If you are unable to calculate the amount and cost of unused capacity, explain why.

2. State two reasons Dransfield might downsize and two reasons they might not downsize.

3. Assume Dransfield has several product lines, of which ZP98 is only one. The manager for the ZP98 product line is evaluated on the basis of manufacturing and customer sales and service costs, but not advertising costs. The manager wants to increase capacity for customers because he thinks the market is growing, and this will cost an additional $1,098. However, the manager is not going to use this extra capacity immediately, so he classifies it as advertising cost rather than customer sales and service cost. How will the deliberate misclassification of this cost affect:

a. The operating income overall?

b. The growth, price-recovery, and productivity components?

c. The evaluation of the ZP98 manager?

You are not required to calculate any numbers when answering requirement 3. Only discuss whether it will have a positive, negative, or no effect; and comment on the ethics of the manager’s actions.