1)Treadlight produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that TreadLight could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models is as follows:

Sale Price: Deluxe per unit ($1,010), Regular per unit ($560)

Costs:

Direct materials: deluxe per unit ($320), Regular per unit ($90)

direct labor: deluxe per unit ($82), regular per unit ($184)

variable manufacturing overhead: deluxe per unit ($240), regular per unit ($80)

fixed manufacturing overhead *: deluxe per unit ($126), regular per unit ($42)

variable operating expenses: deluxe per unit ($117) , regular per unit ($69)

total cost: deluxe per unit ($885), regular per unit ($465)

operating income: deluxe per unit ($125), regular per unit ($95)

*allocated on the basis of machine hours

a. what is the constraint?

b. Which model should Treadlight produce? (Hint: TreadLight can produce either 1 deluxe treadmill or 3 regular treadmills per machine hour.)

c. Should Treadlight produce both models? If so, compute the mix that will maximize operating income.

-----------------------------------------

2) Cool Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:

Direct materials: $ 10.00

direct labor: $1.50

variable overhead: $1.00

fixed overhead:$6.50

manufacturing product cost:$19.00

Another company has offered to sell Cool Systems the switch for $9.50 per unit. If Cool Systems buys the switch from the outside supplier, the manufacturing facilities that will be idled cannot be used for any other purpose, yet none of the fixed costs are avoidable.

1. prepare an outsourcing analysis to determine if Cool Systems should make or buy the switch.

-----------------------------------------------

3) Naturalmaid processes organic milk into plain yogurt. Naturalmaid sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon containers. Each batch, processed at a cost of $880, yields 900 gallons of plain yogurt. Naturalmaid sells the one-gallon tubs for $6 each, and spends $0.16 for each plastic tub. Naturalmaid has recently begun to reconsider its strategy. Naturalmaid wonders if it would be more profitable to sell individual-size portions of fruited organic yogurt at local food stores. Naturalmaid could further process each batch of plain yogurt into 19200 individual portions (3/4 cup each) of fruited yogurt. A recent market analysis indicates that demand for the product exists. Naturalmaid would sell each individual portion for $0.54. Packaging would cost $0.07 per portion, and fruit would cost $0.10 per portion. Fixed costs would not change.

a)Should naturalmaid continue to sell only the gallon- size plain yogurt (sell as is) , or convert the plain yogurt into individual- size portions of fruited yogurt (process further)? why ?

calculate the net benefit per batch under each alternative. (For accounts with a $0 balance, make sure to enter $0 in the appropriate column.)

--------------------------------------------

4) Members of the board of directors of Safety Step have received the following operating income data for the year ended May 31,2012 :

Safety Step

income statement

For the year ended May 31, 2012

Sales Revenue: Product line industrial systems ($350000), product line household systems ($360,000), total ($710,000)

cost of goods sold:

variable: product line industrial systems (34000), product line household systems (47,000), total (81,000)

fixed: product line industrial systems (230,000), product line household systems (69,000), total (299,000)

total cost of goods sold: product line industrial systems ($264000), product line household systems(116,000), total (380000)

gross profit: product line industrial systems ($86,000), product line household systems (244,000), total (330,000)

marketing and administrative expenses:

variable: product line industrial systems (69,000), product line household systems (76,000), total (145000)

fixed: product line industrial systems (41000), product line household systems (24,000), total (65,000)

total marketing administrative exp.: product line industrial systems (110,000), product line household systems (100,000),Total ($210,000)

operating income (loss): product line industrial systems (-$24,000), product line household systems ($144,000), total $120,000

Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $81,000 and decrease fixed marketing and administrative expenses by $14,000.

1. prepare an incremental analysis to show whether Safety Step should drop the industrial systems product line.

2. Prepare contribution margin income statements to show Safety Step's total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line . Compare the difference between the two alternatives' income numbers to your answer to requirement 1.

3. What have you learned from the comparison in requirement 2?