Making decisions using cost accounting data Dawn Spencer designed and built a wooden rocking horse for her grandson's first birthday. A neighbor saw the finished horse and stated that a safe, sturdy, basic toy of such quality could easily be sold for $30 each. Mrs. Spencer, who is retired and likes to work with this woodworking equipment, is now thinking of building more rocking horses to sell directly from her home. She puts together the following list of materials:

Spencer can buy lumber at $.80 per board foot. Her woodworking tools cost $4,500 and can be expected to last 10 years with normal use. She spent seven hours designing and building her grandson's rocking horse, but she estimates that if she works on batches of 50 horses at a time she will be able to finish a batch in a month with a total of 150 hours of work. Being realistic, she decides to allocate $100 per month for workshop depreciation and $15.00 per month for utilities. She does not want to work more than about 150 hours per month, and also estimates that demand for the horses would not be much more than 50 per month.
Spencer has just received an offer to work as a school crossing guard. The job requires about 150 hours per month and pays $5.00 per hour. Dawn would prefer to work at home but cannot afford to do so if she can earn more by working as a school crossing guard.

REQUIRED

a. Calculate the hourly earnings for Spencer if she builds rocking horses.

b. What other considerations are relevant to her decision?

Transcribed Image Text:

Head Body Legs Rockers Dowels ($.10 per foot) 2 bd. ft. 4 bd. ft. 1 bd. ft. 3 bd. ft. 3 lin. ft. Glue and screws.... $.70 per horse Varnish... $2.00 per horse