1. 10.00 points TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,400 hours of welding time is available annually on the machine Because each drum requires 0.8 hours of welding machine time, annual production is limited to 3,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums WVD Drums Selling price per drum $ 159.00 Cost per drum Direct materials $44 90 Direct labor ($18 per hour) 4.50 Manufacturing overhead 3.55 Selling and administrative expense 15.80 68.75 Margin per drum $ 90,25 Management believes 3,500 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 1,600 WVD-type drums per year at a price of $120 per drum, which TutStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TufStuff's production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0 2 hours of welding machine time per frame and yet sell for far more than the drums, Megan believes that TutStuff could sell up to 3,300 bike frames per year to bike manufacturers at a price of $69 each The accounting department has provided the following data concerning the proposed new product Bike Frames Gallinn Tre ROA Management believes 3,500 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc a supplier of quality products, would be able to provide up to 1,600 WVD-type drums per year at a price of $120 per drum, which TutStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TutStuff's production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0 2 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 3,300 bike frames per year to bike manufacturers at a price of $69 each The accounting department has provided the following data concerning the proposed new product Bike Frames Selling price per frame $ 69,00 Cost per frame Direct materials $17.90 Direct labor ($18 per hour) 22 50 Manufacturing overhead 16.15 Selling and administrative expense 6.90 3.45 Margin per frame $ 5.55 The bike frames could be produced with existing equipment and personnel Manufacturing overhead is allocated to products on the basis of direct labor hours Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.09 per WVD drum and $100 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier Selling and administrative expenses are allocated to products on the basis of revenues Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $0 89 per WVD drum whether made or purchased and would be $ 80 per bike frame All of the company's employees-direct and indirect--are paid for full 40 hour workweeks and the company has a policy of laying off workers only in major recessions Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? BANG SOLUESIN + > WOT Application Problem Chap X WO7 Application Probleme Chapix eromheducation.com/hr.tpx? -0.09702824S16880337_1635468953860 -3 As soon as your analysis was shown to the top management team at TutStult several managers got into an argument concerning how direct labor costs should be treated when making this decision One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable costat TotStuff After all, "direct means you can directly trace the cost to products. "If direct laboris not a variable cost, what is? Another manager argued just as strenuously that direct labor should be considered a fixed cost at TotStuft No one had been laid off in over a decade, and for all practical purposes everyone at the plant is on a monthly salary Everyone classified as direct labor works a regular 40-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques whether the welding machine is used to make drums or trames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require a Compute the contribution margin per welding hour for lassume direct labor is a fixed cost] (Round your final answers to 2 decimal places.) Manufactured WVD drums Manufactured bike frames Contribution Margin per tout per hour b. Determine the number of WD drums (if any) that should be purchased and the number of WVD drums and/or bike frames any) that should be manufactured (Assume direct labor is a fixed cost Purchased Manufactured WVD drums Bike frames 1. 10.00 points TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,400 hours of welding time is available annually on the machine Because each drum requires 0.8 hours of welding machine time, annual production is limited to 3,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums WVD Drums Selling price per drum $ 159.00 Cost per drum Direct materials $44 90 Direct labor ($18 per hour) 4.50 Manufacturing overhead 3.55 Selling and administrative expense 15.80 68.75 Margin per drum $ 90,25 Management believes 3,500 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 1,600 WVD-type drums per year at a price of $120 per drum, which TutStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TufStuff's production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0 2 hours of welding machine time per frame and yet sell for far more than the drums, Megan believes that TutStuff could sell up to 3,300 bike frames per year to bike manufacturers at a price of $69 each The accounting department has provided the following data concerning the proposed new product Bike Frames Gallinn Tre ROA Management believes 3,500 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc a supplier of quality products, would be able to provide up to 1,600 WVD-type drums per year at a price of $120 per drum, which TutStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TutStuff's production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require only 0 2 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 3,300 bike frames per year to bike manufacturers at a price of $69 each The accounting department has provided the following data concerning the proposed new product Bike Frames Selling price per frame $ 69,00 Cost per frame Direct materials $17.90 Direct labor ($18 per hour) 22 50 Manufacturing overhead 16.15 Selling and administrative expense 6.90 3.45 Margin per frame $ 5.55 The bike frames could be produced with existing equipment and personnel Manufacturing overhead is allocated to products on the basis of direct labor hours Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.09 per WVD drum and $100 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier Selling and administrative expenses are allocated to products on the basis of revenues Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $0 89 per WVD drum whether made or purchased and would be $ 80 per bike frame All of the company's employees-direct and indirect--are paid for full 40 hour workweeks and the company has a policy of laying off workers only in major recessions Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? BANG SOLUESIN + > WOT Application Problem Chap X WO7 Application Probleme Chapix eromheducation.com/hr.tpx? -0.09702824S16880337_1635468953860 -3 As soon as your analysis was shown to the top management team at TutStult several managers got into an argument concerning how direct labor costs should be treated when making this decision One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable costat TotStuff After all, "direct means you can directly trace the cost to products. "If direct laboris not a variable cost, what is? Another manager argued just as strenuously that direct labor should be considered a fixed cost at TotStuft No one had been laid off in over a decade, and for all practical purposes everyone at the plant is on a monthly salary Everyone classified as direct labor works a regular 40-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques whether the welding machine is used to make drums or trames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require a Compute the contribution margin per welding hour for lassume direct labor is a fixed cost] (Round your final answers to 2 decimal places.) Manufactured WVD drums Manufactured bike frames Contribution Margin per tout per hour b. Determine the number of WD drums (if any) that should be purchased and the number of WVD drums and/or bike frames any) that should be manufactured (Assume direct labor is a fixed cost Purchased Manufactured WVD drums Bike frames