Refer to Exercise 13-25.

Data From Exercise 13-25

Methuen Corporation makes a special-purpose machine, D4H, used in the textile industry. Methuen has designed the D4H machine for 2020 to be distinct from its competitors. It has been generally regarded as a superior machine. Methuen presents the following data for 2019 and 2020.

Methuen produces no defective machines, but it wants to reduce direct materials usage per D4H machine in 2020. Conversion costs in each year depend on production capacity defined in terms of D4H units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Methuen can support, not the actual number of customers it serves. Methuen has 79 customers in 2019 and 84 customers in 2020.

Required

1. Is Methuen’s strategy one of product differentiation or cost leadership? Explain briefly.
2. Describe briefly key measures that you would include in Methuen’s balanced scorecard and the reasons or doing so.

Required

1. Calculate the amount and cost of 

(a) Unused manufacturing capacity and 

(b) Unused selling and customer- service capacity at the beginning of 2020 based on actual production and actual number of customers served in 2020.
2. Suppose Methuen can add or reduce its manufacturing capacity in increments of 40 units. What is the maximum amount of costs that Methuen could save in 2020 by downsizing manufacturing capacity?
3. Methuen, in fact, does not eliminate any of its unused manufacturing capacity. Why might Methuen not downsize?

Transcribed Image Text:

1. Units of D4H produced and sold 2. Selling price 3. Direct materials (kilograms) 4. Direct material cost per kilogram 5. Manufacturing capacity in units of D4H 6. Total conversion costs 7. Conversion cost per unit of capacity 8. Selling and customer-service capacity 9. Total selling and customer-service costs 10. Selling and customer-service capacity cost per customer 2019 200 $43,000 310,000 $7.25 275 $2,145,000 $7,800 95 customers $1,045,000 $11,000 2020 210 $45,000 317,500 $8.00 275 $2,172,500 $7,900 90 customers $900,000 $10,000