3 XYZ Company needs 1,000 motors in its manufacture of automobiles. It can buy the motors from ABC for $1,250 each. XYZ's plant can manufacture the motors for the following costs per unit: Direct materials $ 650 Direct manufacturing labor 250 Variable manufacturing overhead 200 Fixed manufacturing overhead 350 Total $1,450 If XYZ buys the motors from ABC, 75% of the fixed manufacturing overhead applied will not be avoided. Required: Should the company make or buy the motors? Show calculations. 12-18 Short-run pricing, capacity constraints. Colorado Mountains Dairy, maker of specialty cheeses, produces a soft cheese from the milk of Holstein cows raised on a special corn-based diet. One kilogram of soft cheese, which has a contribution margin of $10, requires 4 liters of milk. A well-known gourmet restaurant has asked Colorado Mountains to produce 2,600 kilograms of a hard cheese from the same milk of Holstein cows. Knowing that the dairy has sufficient unused capacity, Elise Princiotti, owner of Colorado Mountains, calculates the costs of making one kilogram of the desired hard cheese: Milk (8 liters * $2.00 per liter) $16 Variable direct manufacturing labor 5 Variable manufacturing overhead 4 Fixed manufacturing cost allocated 6 Total manufacturing cost $31 1. Suppose Colorado Mountains can acquire all the Holstein milk that it needs. What is the minimum price Required per kilogram it should charge for the hard cheese? 2. Now suppose that the Holstein milk is in short supply. Every kilogram of hard cheese produced by Colorado Mountains will reduce the quantity of soft cheese that it can make and sell. What is the minimum price per kilogram it should charge to produce the hard cheese? 17-19 Weighted-average method, equivalent units. Consider the following data for the assembly division of Fenton Watches, Inc.: The assembly division uses the weighted-average method of process costing. Physical Units (Watches) Direct Materials Conversion Costs Beginning work in process (May 1)a 80 $ 493,360 $ 91,040 Started in May 2012 500 Completed during May 2012 460 Ending work in process (May 31)b 120 Total costs added during May 2012 $3,220,000 $1,392,000 aDegree of completion: direct materials, 90%; conversion costs, 40%. bDegree of completion: direct materials, 60%; conversion costs, 30%. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column Required of your schedule 17-20 Weighted-average method, assigning costs (continuation of 17-19). For the data in Exercise 17-19, summarize total costs to account for, calculate cost per equivalent unit for Required direct materials and conversion costs, and assign total costs to units completed (and transferred out) and to units in ending work in process 20-16 Economic order quantity for retailer. Fan Base (FB) operates a megastore featuring sports merchandise. It uses an EOQ decision model to make inventory decisions. It is now considering inventory decisions for its Los Angeles Galaxy soccer jerseys product line. This is a highly popular item. Data for 2011 are as follows: Expected annual demand for Galaxy jerseys 10,000 Ordering cost per purchase order $200 Carrying cost per year $7 per jersey Each jersey costs FB $40 and sells for $80. The $7 carrying cost per jersey per year comprises the required return on investment of $4.80 (12% $40 purchase price) plus $2.20 in relevant insurance, handling, and theft-related costs. The purchasing lead time is 7 days. FB is open 365 days a year. 1. Calculate the EOQ. Required 2. Calculate the number of orders that will be placed each year. 3. Calculate the reorder poin 20-17 Economic order quantity, effect of parameter changes (continuation of 20-16). Athletic Textiles (AT) manufactures the Galaxy jerseys that Fan Base (FB) sells to its customers. AT has recently installed computer software that enables its customers to conduct one-stop purchasing using state-of-the-art Web site technology. FBs ordering cost per purchase order will be $30 using this new technology. 1. Calculate the EOQ for the Galaxy jerseys using the revised ordering cost of $30 per purchase order. Required Assume all other data from Exercise 20-16 are the same. Comment on the result. 2. Suppose AT proposes to assist FB. AT will allow FB customers to order directly from the AT Web site. AT would ship directly to these customers. AT would pay $10 to FB for every Galaxy jersey purchased by one of FBs customers. Comment qualitatively on how this offer would affect inventory management at FB. What factors should FB consider in deciding whether to accept ATs proposal? 23-18 ROI and RI. (D. Kleespie, adapted) The Outdoor Sports Company produces a wide variety of outdoor sports equipment. Its newest division, Golf Technology, manufactures and sells a single product AccuDriver, a golf club that uses global positioning satellite technology to improve the accuracy of golfers shots. The demand for AccuDriver is relatively insensitive to price changes. The following data are available for Golf Technology, which is an investment center for Outdoor Sports: Total annual fixed costs $30,000,000 Variable cost per AccuDriver $ 500 Number of AccuDrivers sold each year 150,000 Average operating assets invested in the division $48,000,000 1. Compute Golf Technologys ROI if the selling price of AccuDrivers is $720 per club. Required 2. If management requires an ROI of at least 25% from the division, what is the minimum selling price that the Golf Technology Division should charge per AccuDriver club? 3. Assume that Outdoor Sports judges the performance of its investment centers on the basis of RI rather than ROI. What is the minimum selling price that Golf Technology should charge per AccuDriver if the companys required rate of return is 20%