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Abbott Suit Corporation (ASC) manufactures BOTH nylon AND cotton jogging suits and this is its cost structure. Rent on MANUFACTURING facility $30,000 Salaries for CEO,

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Abbott Suit Corporation (ASC) manufactures BOTH nylon AND cotton jogging suits and this is its cost structure. Rent on MANUFACTURING facility $30,000 Salaries for CEO, cost accountant, administrative staff $10,000 Depreciation for MANUFACTURING facility $10.000 550.000 Erin Rogers, UW-M graduate, creates the following standards for the two jogging suits: Nylon Jogging Suits Cotton Jogging Suits Sid.aty/suit Std.price input Sid.qty/suit Sid.price/input Direct Materials 2 yds/suit $10/yd 3 yds/suit $20/yd Direct Labor 5 dlh/suit $10/dlh 4 dilh/suit $5/dlh, VOH - utilities/grease 2 mh/suit $10/mb 4 mh/suit $10/mb VOH - indirect labor 5 dlh/suit $10/dlh 4 dlh/suit $10/dlh Assume the above standards are 100% accurate and that nylon suits sell for $200, whereas cotton jogging suits sell for $250. Answer the following questions: 1. If there is no capacity issue with the sewing machine, which suit would ASC rather sell, nylon or cotton? 2. Assume that there IS a capacity issue, in that the sewing machine can ONLY work 3600 (about 10 hours a day) hours (or it will break). Also, assume that annual demand for nylon suits is 800 and annual demand for cotton is also 800. What is the optimal product mix in terms of making selling nylon and cotton suits? SHOW YOUR WORK. 3. Use your answer to #2 to create the 'status quo'. Fischer machine comes up with the following offer hey, we can RENT you an extra sewing machine for $4,000 and it has a capacity of another 3,600 hours!'. Do you take the offer? SHOW YOUR WORK. 4. Use your answer to #2, to create the 'status quo. Swenson Oil Company approaches Abbott Company with the following offer 'IF you pay us $3,000, our oil will allow your company to reduce the machine hours per nylon suit to 1 machineylon suit and 2 machine hours per cotton suit!" Do you take the offer? Why or why not? SHOW YOUR WORK. 5. Use your answer to #2, to create the 'status quo". Mccarthy nylon company comes up with the following offer hey, if you buy OUR nylon at $20/yard, you can advertise this (at $1,000 per year) AND be able to sell your nylon suits for $250 (rather than $200). Do you take the offer? Why or why not

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