Business Decision Case Hall Manufacturing Corporation makes a new high-tech adhesive in a

single process that blends and bottles die product, which currently sells for $20 per gallon. Market

demand for the product seems good, but management is not satisfied with the products seemingly

low profit margin and has sought your advice.

Because of its concern, management has allocated a $60,000 fund for a program of product

promotion or cost reduction, or both. Members of the firms controllers office and marketing staff

have identified the following three possible plans:

1. Plan A: Devote all funds to product promotion, which allows all costs and the sales volume to

remain the same, but permits a sales price increase of $3.50 per gallon.

2. Plan B: Spend $32,000 on product promotion and $28,000 on cost reduction techniques, which

maintains sales volume, permits a price increase of $2 per gallon, and reduces conversion costs

by 10% per gallon.

3. Plan C: Devote all funds to cost reduction efforts. Sales volume and price do not change. For

each gallon produced, however, direct material cost decreases 10%, and conversion cost de-

creases 20%.

The controllers office also provides you with the following operating data for a typical period (all

materials are added initially; conversion costs occur evenly throughout the process; the weighted

average method is used for process costing):

Beginning work in process (2,500 gallons, 60% processed) . . . . . . . . . . . . . . . . . . . . . $ 32,250

Units started in process (34,000 gallons)

Ending work in process (3,500 gallons, 60% processed)

Costs charged to the department:

Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,400

Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,390

Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,330

$650,370

Required

Using the data from this representative production period, analyze the apparent relative benefits

derived from each plan and make a recommendation supported by relevant calculations. Assume

that sales for each period will equal units completed in that period. Hint: You will need to prepare

a Production Report, Cost per Equivalent Unit Report, and Production Cost Report to analyze the

three plans. These reports were discussed in Chapter 4.

EKY8-2. Business Decision Case Hall Manufacturing Corporation makes a new high-tech adhesive in a single process that blends and bottles die product, which currently sells for $20 per gallon. Market demand for the product seems good, but management is not satisfied with the product's seemingly low profit margin and has sought your advice. Because of its concern, management has allocated a $60,000 fund for a program of product promotion or cost reduction, or both. Members of the firm's controller's office and marketing staff have identified the following three possible plans: Chapter 8 Relevant Costs and Short-Term Decision Making 1. Plan A: Devote all funds to product promotion, which allows all costs and the sales volume to remain the same, but permits a sales price increase of $3.50 per gallon. 2. Plan B: Spend $32,000 on product promotion and $28,000 on cost reduction techniques, which maintains sales volume, permits a price increase of $2 per gallon, and reduces conversion costs by 10% per gallon. 3. Plan C: Devote all funds to cost reduction efforts. Sales volume and price do not change. For cach gallon produced, however, direct material cost decreases 10%, and conversion cost de- creases 20%. The controller's office also provides you with the following operating data for a typical period (all materials are added initially; conversion costs occur evenly throughout the process; the weighted average method is used for process costing): $ 32,250 Beginning work in process (2,500 gallons, 60% processed) ...... Units started in process (34,000 gallons) Ending work in process (3,500 gallons, 60% processed) Costs charged to the department: Direct material ... Direct labor... Manufacturing overhead . 275,400 186,390 156,330 S650,370 Required Using the data from this representative production period, analyze the apparent relative benefits derived from each plan and make a recommendation supported by relevant calculations. Assume that sales for each period will equal units completed in that period. Hint: You will need to prepare a Production Report, Cost per Equivalent Unit Report, and Production Cost Report to analyze the three plans. These reports were discussed in Chapter 4. EKY8-2. Business Decision Case Hall Manufacturing Corporation makes a new high-tech adhesive in a single process that blends and bottles die product, which currently sells for $20 per gallon. Market demand for the product seems good, but management is not satisfied with the product's seemingly low profit margin and has sought your advice. Because of its concern, management has allocated a $60,000 fund for a program of product promotion or cost reduction, or both. Members of the firm's controller's office and marketing staff have identified the following three possible plans: Chapter 8 Relevant Costs and Short-Term Decision Making 1. Plan A: Devote all funds to product promotion, which allows all costs and the sales volume to remain the same, but permits a sales price increase of $3.50 per gallon. 2. Plan B: Spend $32,000 on product promotion and $28,000 on cost reduction techniques, which maintains sales volume, permits a price increase of $2 per gallon, and reduces conversion costs by 10% per gallon. 3. Plan C: Devote all funds to cost reduction efforts. Sales volume and price do not change. For cach gallon produced, however, direct material cost decreases 10%, and conversion cost de- creases 20%. The controller's office also provides you with the following operating data for a typical period (all materials are added initially; conversion costs occur evenly throughout the process; the weighted average method is used for process costing): $ 32,250 Beginning work in process (2,500 gallons, 60% processed) ...... Units started in process (34,000 gallons) Ending work in process (3,500 gallons, 60% processed) Costs charged to the department: Direct material ... Direct labor... Manufacturing overhead . 275,400 186,390 156,330 S650,370 Required Using the data from this representative production period, analyze the apparent relative benefits derived from each plan and make a recommendation supported by relevant calculations. Assume that sales for each period will equal units completed in that period. Hint: You will need to prepare a Production Report, Cost per Equivalent Unit Report, and Production Cost Report to analyze the three plans. These reports were discussed in Chapter 4