1.

2.

3.

4.

Problem 4-59 (Algo) Make or Buy (LO 4-4) Florida Kitchens produces high-end cooking ranges. The costs to manufacture and market the ranges at the company's volume of 3,000 units per quarter are shown in the following table: The company has the capacity to produce 3,000 units per quarter and always operates at full capacity. The ranges sell for $4,300 per unit. Required: a. Florida Kitchens recelves a proposal from an outside contractor, Burns Electric, who will manufacture 1,200 of the 3,000 ranges per quarter and ship them directly to Florida's customers as orders are recelved from the sales office at Florida. Florida would provide the materials for the ranges, but Burns would assemble, box, and ship the ranges. The variable manufacturing costs would be reduced by 40 percent for the 1,200 ranges assembled by Burns. Florida's fixed nonmanufacturing costs would be unaffected, but its variable nonmanufacturing costs would be cut by 60 percent for these 1,200 units produced by Bums. The Florida plant would operate at 60 percent of its normal level, and total fixed manufacturing costs would be cut by 20 percent: a-1. What in -house unit cost should be compared with the quotation recelved from Burns Electric? Assume the payment to the outside contractor is $864 a-2. Should the proposal be accepted for a price (that is, payment to the contractor) of $864 per unit? b. Assume the same facts as in requirement (a) but assume that the idie facilities would be used to produce 320 specialty ranges per quarter. These ranges could be sold for $19,200 each, while the costs of production would be $13.250 per unit variable manufacturing cost Variable marketing costs would be $460 per unit. Fixed nonmanufacturing and manufacturing costs would be unchanged whether the original 3,000 regular ranges were manufactured or the mix of 1,800 regular ranges plus 320 speciaity ranges was produced: b-1. Considering this opportunity to use the freed-up space, what is the maximum purchase price per unit that Florida Kitchens should be willing to pay the Burns Electric to assemble regular ranges? b-2. Should the Burns' proposal of $864 per unit be accepted? Complete this question by entering your answers in the tabs below. Required: a. What impact would accepting this special order have on operating profit? b. Should RTD accept the order? Complete this question by entering your answers in the tabs below. Should RTD accept the order? Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 48,000 units during the quarter. RTD carries no inventories. Fixed costs included in this income statement are $312,000 for depreciation of plant and machinery and miscellaneous factory operations and $96,000 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $20.30 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed manufacturing costs. No administrative costs will be incurred because of the order. Required: a. What impact would accepting this special order have on operating profit? b. Should RTD accept the order? Complete this question by entering your answers in the tabs below. Prepare the forecasted annual income statement showing contribution margins by products. Do not allocate fixed costs to products. (Enter your answers in thousands. (1.e., 5,400,000 should be entered as 5,400).) Complete this question by entering your answers in the tabs below. Assume the same facts as in requirement (a) but assume that the idle facilities would be used to produce 320 specialty ranges per quarter. These ranges could be sold for $19,200 each, while the costs of production would be $13,250 per unit variable manufacturing cost. Variable marketing costs would be $460 per unit. Fixed nonmanufacturing and manufacturing costs would be unchanged whether the original 3,000 regular ranges were manufactured or the mix of 1,800 regular ranges plus 320 specialty ranges was produced. B2. Should the Burns' proposal of $864 per unit be accepted? Complete this question by entering your answers in the tabs below. Florida Kitchens recelves a proposal from an outside contractor, Burns Electric, who will manufacture 1,200 of the 3,000 ranges per quarter and ship them directly to Florida's customers as orders are received from the sales office at Florida. Florida would provide the materials for the ranges, but Bums would assemble, box, and ship the ranges. The variable manufacturing costs would be reduced by 40 percent for the 1,200 ranges assembled by Burns. Florida's fixed nonmanufacturing costs would be unaffected, but its variable nonmanufacturing costs would be cut by 60 percent for these 1,200 units produced by Burns. The Florida plant would operate at 60 percent of its normal level, and total fixed manufacturing costs would be cut by 20 percent. A1. What in-house unit cost should be compared with the quotation received from Burns Electric? Assume the payment to the outside contractor is $864. Required: a. What impact would accepting this special order have on operating profit? b. Should RTD accept the order? Complete this question by entering your answers in the tabs below. What impact would accepting this special order have on operating profit? (Enter your answers in thousands rounded to 1 decimal place. (i.e., 5,400,400 should be entered as 5,400.4 ). Select option "higher or "lower", keeping Status Quo as t base. Select "none" if there is no effect.) Problem 4-65 (Algo) Decision Whether to Add or Drop (LO 4-4) Hazlett \& Family is organized into two geographic markets Northern and Southern. The company makes an off-road vehicle for recreation and agricultural use. The vehicle is sold in three models, depending on the power and options. The three models, from least expensive to most expensive, are the H-L, H-LX, and H-LXS. The company's financial staff has prepared the following forecasted income statement for the upcoming fiscal year (in thousands of dollars): Management has expressed special concern with the Southern market because of the extremely poor retum on sales. This market was entered a year ago because it seemed like the best opportunity for growh. Hazlett \& Family knew that it would take some time to build profitability in the market, but there has been no noticeable change in the low returns over time. The financial staff has also prepared product-line information to help the managers of the company decide whether to leave the Southern market. Sales revenue by market and product are as follows (in thousands of dollars): Marketing costs that are not listed as variable are fixed for the period and separable by market. Fixed marketing costs assigned to the Southern market would be saved if that market were eliminated. Eliminating the Southern market will not affect administrative costs or fixed manufacturing costs. Required: a. Assuming there are no alternative uses for Hazlett \& Family's present capacity, would you recommend dropping the Southern market? b. Prepare the forecasted annual income statement showing contribution margins by products. Do not allocate fixed costs to products. c. It is believed that a new model can be ready for sale next year if Haziett decides to go ahead with continued research. The new product would replace HLX and can be produced by simply converting equipment presently used in producing the H.LX model. This conversion will increase fixed costs by $488,000 annually. What must be the minimum annual contribution margin for the new model to make the changeover financially feasible? King Bathroom Fixtures (KBF) makes faucets, basins, and so on primarily for home use and soid through major retall chains. The design team at KBF has been working on a unique design to provide reasonable pressure while still conserving water. The market is quite competitive and KBF analysts believe that the fixture could sell for a unit price of $55.40. The cost accounting team at KBF has estimated the following manufacturing costs for the new design. An operating profit of 12 percent of manufacturing costs is required for all new products at KBF without the explicit consent of the top executive team. At KBF, operating margin is defined as revenues less manufacturing costs, all divided by manufacturing costs). Required: a. Suppose KBF uses cost-plus pricing, setting the price equal to manufacturing costs plus 12 percent of manufacturing costs. What price should it charge for the fixture? b. Suppose KBF uses target costing. What is the highest acceptable manufacturing cost at which KBF would be wiling to produce the fixture? Complete this question by entering your answers in the tabs below. Suppose KBF uses tarpet costing. What is the highest acceptable manufacturing cost at which KBF would be willing to produce the fixture? (Round your answer to 2 decimal places.) Required: . Assuming there are no alternative uses for Hazlett \& Family's present capacity, would you recommend dropping the Southern market? b. Prepare the forecasted annual income statement showing contribution margins by products. Do not allocate fixed costs to products. c. It is believed that a new model can be ready for sale next year if Hazlett decides to go ahead with continued research. The new. product would replace HLX and can be produced by simply converting equipment presently used in producing the HLX model. This conversion will increase fixed costs by $488,000 annually. What must be the minimum annual contribution margin for the new model to make the changeover financially feasible? Complete this question by entering your answers in the tabs below. Assuming there are no alternative uses for Hazlett 8 Family's present capacity, would you recommend dropping the Southern market? King Bathroom Fixtures (KBF) makes faucets, basins, and so on primarily for home use and sold through major retail chains. The design team at KBF has been working on a unique design to provide reasonable pressure while still conserving water. The market is quite competitive and KBF analysts belleve that the fixture could sell for a unit price of $55,40. The cost accounting team at KBF has estimated the following manufacturing costs for the new design. An operating profit of 12 percent of manufacturing costs is required for all new products at KBF withiout the explicit consent of the top executive team. At KBF, operating margin is defined as revenues less manufacturing costs, atf divded by manufacturing costs). Required: a. Suppose KBF uses cost-plus pricing, setting the price equal to manufacturing costs pius 12 percent of manufacturing costs. What price should it charge for the fixture? b. Suppose KBF uses target costing. What is the highest acceptable manufacturing cost at which KBF would be willing to produce the fixture? Complete this question by entering your answers in the tabs below. Suppose KBF uses cost-plus pricing, setting the price equal to manufacturing costs plus 12 percent of manufacturing costs. What price should it charge for the fixture? (Round your answer to 2 decimal places.) Required: a. Assuming there are no alternative uses for Hazlett \& Family's present capacity, would you recommend dropping the Southern market? b. Prepare the forecasted annual income statement showing contribution margins by products. Do not allocate fixed costs to produe c. It is believed that a new model can be ready for sale next year if Hazlett decides to go ahead with continued research. The new product would replace HLX and can be produced by simply converting equipment presently used in producing the HLX model. Th conversion will increase flxed costs by $488,000 annually. What must be the minimum annual contribution margin for the new mode to make the changeover financlally feasible? Complete this question by entering your answers in the tabs below. It is believed that a new model can be ready for sale next year if Hazlett decides to go ahead with continued reseorch. The new product would replace HLX and can be produced by simply converting equipment presently used in producing the HLX model. This conversion will increase fixed costs by $488,000 annually. What must be the minimum annual contribution margin for the new model to make the changeover financially feasible? (Enver your answer in thousands. (1.e., 5,400,000 should be entered as 5,400).) Complete this question by entering your answers in the tabs below. Florida Kitchens recelves a proposal from an outside contractor, Burns Electric, who will manufacture 1,200 of the 3,000 ranges per quarter and ship them directly to Florida's customers as orders are recelved from the sales office at Florida. Florida would provide the materials for the ranges, but Burns would assemble, box, and ship the ranges. The variable manufacturing costs would be reduced by 40 percent for the 1,200 ranges assembled by Burns. Florida's fixed nonmanufacturing costs would be unaffected, but its variable nonmanufacturing costs would be cut by 60 percent for these 1,200 units produced by Bums. The Florida plant would operate at 60 percent of its normal level, and total fixed manufacturing costs would be cut by 20 percent. A2. Should the proposal be accepted for a price (that is, payment to the contractor) of $864 per unit? Should the proposal be accopted for a price (that is, payment to the contractor) of $864 per unit? Complete this question by entering your answers in the tabs below. Assume the same facts as in requirement (a) but assume that the idle facilities would be used to produce 320 specialty ranges per quarter. These ranges could be sold for $19,200 each, while the costs of production would be $13,250 per unit variable manufacturing cost. Variable marketing costs would be $460 per unit. Fxed nonmanufacturing and manufacturing costs would be unchanged whether the original 3,000 regular ranges were manufactured or the mix of 1,800 regular ranges plus 320 specialty ranges was produced. B1. Considering this opportunity to use the freed-up space, what is the maximum purchase price per unit that florida Kitchens should be willing to pay the Bums Electric to assemble regular ranges