Assignment 1 AIKON Inc. assembles three different telephone models, X1, Y2 and Z3. Assume the market is will- ing to buy whatever can be produced of all three products. AlKON Inc. has a capacity of 126 ma- chine-hours. The following information is available. X1 Y2 Z3 Selling price per unit 6,199 6,999 8,999 Direct materials per unit 1,765 1,866 2,105 Variable direct manufacturing labour per unit 845 958 1,647 Variable materials-handling overhead per unit 155 187 215 Fixed materials-handling overhead (total) 1,100 1,650 1,650 Machine-hour required to produce one unit 2 3 18 The fixed costs are avoidable such that the costs will not be incurred if production of a product is not undertaken. That is, the fixed costs could be interpreted as a setup cost. Question 1.1 (12 points) What product mix should AlKON Inc. choose to maximize operating income and what is the total contribution margin? The market demand for X1, Y2 and Z3 is now changing to the following levels: X1 Y2 Z3 Market demand in units 30 0 WIRK Inc. is a company producing similar products as AIKON Inc. WIRK Inc. offers to sell AIKON Inc. 30 units of product X1 at a price of kr. 2,810 per unit. Question 1.2 (12 points) Considering the offer from WIRK Inc. of kr. 2,810 per unit should the manager of AIKON Inc. a) make or buy product X1, and b) what is the difference in production cost between making or buying? Question 1.3 (12 points) Continuing question 1.2; at what level of demand/production of X1 will the manager of AIKON Inc. be indifferent between making or buying (break-even)?Assume market demand is: X1 Y2 Market demand in units 18 30 0 Thus, at present AIKON Inc. uses the total production capacity to produce 18 units of X1 and 30 units of Y2. It turns out the market demand for product Z3 is increasing - selling prices and manu- facturing costs are unaltered. WIRK Inc. now offers AIKON Inc. exactly 30 units of product Y2 at a price of kr. 3,800 per unit. Question 1.4 (14 points) Should the manager of AIKON Inc. a) accept the offer from WIRK Inc. and start the production of product Z3? b) what is the net change in contribution margin if the manager accepts the offer from WIRK Inc. and uses the free capacity to start the production of product Z3? What is the change to profit?Assignment 2 Doll Me Crazy Inc. consists of two departments: an assembly department and a testing department. In the assembly department dolls are assembled in large numbers; each of these similar products is immediately transferred to the testing department - where each product is subject to a standard- ized test - after assembly. The process in the testing department is that the employed testers play around with each doll and when the playing comes to an end, the testers attach an (expensive) certificate to the product. That is, there are two cost categories in the testing department: labor costs that are accrued evenly throughout the process and materials costs [costs of the certificates] that are accrued (fully) at the very end of the testing process. After testing, each product is immediately delivered (sold) to deal- ers. Question 2.1 (5points) Graphically sketch the flow of costs through the firm's accounting system. The following (budget) data on the testing department for the next period has been collected and is handed to you (completion degrees are listed both as percentages and as decimals): Transferred-in Physical costs Materials units from assembly costs Labor costs Initial inventory in department 602 units 293,373 kr. O kr. 52,205 kr. Completion degree 0% (0.00) 30% (0.30) Started during period 299 Completed and transferred out during period 713 units Costs added during period 127,080 kr. 403,205 kr. 28,692 kr. Ending inventory in department 188 units Completion degree 0% (0,00) 55% (0.55) The firm is subject to varying input prices (on certificates as well as labor) in the testing department. The firm has decided to implement process costing in the testing department; however, the firm is unsure whether to opt for the FIFO [first-in-first-out] or WA [weighted average] method in the in- ventory costing.Question 2.2 (10 points) What are your thoughts on the firm's decision? Explain how the firm's income and value/cost of inventory is affected by the choice between FIFO and WA when input prices are varying. Please keep you answer short. That is, present short, clear and convincing arguments... Question 2.3 (15 points) Implement process costing to the testing department using the WA method. What is budgeted cost of goods sold and budgeted ending work in process? Point out the most important results from the accounting procedure. Question 2.4 (15 points) Implement process costing to the testing department using the FIFO method. What is budgeted cost of goods sold and budgeted ending work in process? Consider (if any) differences in the most im- portant results when comparing the WA and FIFO methods. Based on your excellent work in implementing process costing using both inventory costing meth- ods, the firm offers you a lucrative, short-term consulting contract. You will be rewarded based on the monthly income [from the income statement] for the next period. Essentially, your only task will be to recommend whether to opt for the FIFO or the WA method. Question 2.5 (5 points) How do you approach the consulting task: what decision would you recommend and why? Again, please keep your answer short