Case 7.1 a-d
Cases NDAND INCREMENTAL ANALYSIS. Sarah Drogo, president of Storage, Inc. CASE 7makes a wide variety of storage boxes for home and office use, is thinking about ew line of small plastic storage boxes. This would require a new technology. The company ominantly cardboard of various weights that are used in its other products. Since for the company, Sarah wants to make sure that all of the financial and nonfinancial 7.1 CVP AND INC currently uses a big g move hs son are understood before she gets under way. She thinks she can sell 3 illion units. Working with Jarrod White, her bu information on the new boxes. They wo sinoss snalyst, Sarah puts together the following first-pass uld've : for $1.99. The company sells to the distribution channel at 50% of retail, so the product wo o nat the company approximately SI per box. Jarrod estimates that the boxes would cost $0.15 in direct materials, $0.10 in direct labor, $0.05 in pack- materials, and $0.20 in variable machining costs. The cost of the new equipment, insurance, space (new space would be needed for the operation), support activities, and so on are estimated t $500,000 per year. In addition to these simple estimates, Jarrod determines that manufacturing the new box will require an additional person in manufacturing, quality control, and purchasing. ag ng Their salaries would be $30,000, $35,000, and $45,000, respectively. ding the new line would also stress the packaging area. Jarrod believes there will be a one- cost of $175,000 to retrofit the packing and shipping area to accommodate the new smaller box time es, which will be packed in boxes of 12 for shipment to customers. The company currently bun coard box, which means there will be many new activities in the packaging area. It is likely that to ha epacks its products with a simple strap device. The new containers will require their own card- ndle the increased workload, the company will need either a new person at a salary of $25,000 d year, or to pay overtime at $12.50 per hour for 10 hours a week to four existing workers. MANAGEMENT ACCOUNTING Cases NDAND INCREMENTAL ANALYSIS. Sarah Drogo, president of Storage, Inc. CASE 7makes a wide variety of storage boxes for home and office use, is thinking about ew line of small plastic storage boxes. This would require a new technology. The company ominantly cardboard of various weights that are used in its other products. Since for the company, Sarah wants to make sure that all of the financial and nonfinancial 7.1 CVP AND INC currently uses a big g move hs son are understood before she gets under way. She thinks she can sell 3 illion units. Working with Jarrod White, her bu information on the new boxes. They wo sinoss snalyst, Sarah puts together the following first-pass uld've : for $1.99. The company sells to the distribution channel at 50% of retail, so the product wo o nat the company approximately SI per box. Jarrod estimates that the boxes would cost $0.15 in direct materials, $0.10 in direct labor, $0.05 in pack- materials, and $0.20 in variable machining costs. The cost of the new equipment, insurance, space (new space would be needed for the operation), support activities, and so on are estimated t $500,000 per year. In addition to these simple estimates, Jarrod determines that manufacturing the new box will require an additional person in manufacturing, quality control, and purchasing. ag ng Their salaries would be $30,000, $35,000, and $45,000, respectively. ding the new line would also stress the packaging area. Jarrod believes there will be a one- cost of $175,000 to retrofit the packing and shipping area to accommodate the new smaller box time es, which will be packed in boxes of 12 for shipment to customers. The company currently bun coard box, which means there will be many new activities in the packaging area. It is likely that to ha epacks its products with a simple strap device. The new containers will require their own card- ndle the increased workload, the company will need either a new person at a salary of $25,000 d year, or to pay overtime at $12.50 per hour for 10 hours a week to four existing workers. MANAGEMENT ACCOUNTING
