Exercise 4.26 Stacy developed an innovative computer game, called Home By Myself (HBM). It was so successful that she quickly followed up with two sequels: Home By Myself II (HBM2) and Home By Myself III (HBM3). The costs of developing the games were $96,000 for HBM, $5,500 for HBM2, and $16,500 for HBM3. The production process consists of using her computer to copy the games to blank DVDs and then packing them with printed instructions in a display box. It takes longer to copy the original game than it takes to copy the sequels. Stacy can produce, ready for shipping, about 20 copies of HBM, 30 copies of HBM2, or 45 copies of HBM3 in an hour, and she normally works 8 hours per day. HBM HBM2 HBM3 Selling price $ 50.30 $ 30.70 $ 30.70 Costs Blank DVD 1.00 0.50 0.50 Instructions and packaging 4.50 2.50 2.50 Prorated development costs* 19.20 1.10 3.30 Margin $ 25.60 $ 26.60 $ 24.40 Daily demand 120 games 120 games 90 games *The prorated development costs were determined for each game by dividing the game's development costs by 5,000, the estimated minimum total demand for each game. What is the contribution margin per hour of Stacy's time for each game? (Round all entries to 2 decimal places, e.g. 5.35.) HBM HBM2 HBM3 Contribution margin per hour: $ In what order should Stacy produce the games? Production order: Using the general decision rule for constrained capacity, what is the most Stacy should be willing to pay per hour for a worker to duplicate and pack DVDs after her normal working hours? (Assume that the worker would work at the same pace as Stacy.) (Round entry to 2 decimal places, e.g. 5.35.) Willing to pay: per hour Exercise 4.25 The income statement for Nash Salmon Sales, which produces smoked salmon, follows: Revenue (99,200 lbs) $694,400 Expenses Fish $ 158,720 Smoking materials 19,840 Packaging materials 29,760 Labour (wages) 277,760 Administration 178,560 Sales commissions 9,920 Total expenses 674,560 Pretax income $ 19,840 Assume that the administrative costs are fixed and that all the other costs are variable. Suppose the provincial government curtails fishing because of low fish counts. As a result, Nash Salmon Sales can buy only 49,600 lbs of salmon this year. Assume that the selling price, the fixed costs, and the variable costs remain the same as last year. Using only quantitative information, should Nash Salmon operate this year? Explain your answer, using calculations. (Hint: Before you begin, identify the type of non-routine operating decision, the decision options, and the relevant information for this decision.) (Round answer to 2 decimal places, e.g. 5.35.) Contribution margin: per lb salmon If the fixed costs can be avoided by not producing, the company produce this year. If the fixed costs can not be avoided by not producing, the company produce this year. Assume that Nash Salmon can buy up to 68,720 lbs of fish at $1.60/ibs and that the remainder of the fixed and variable costs remain the same as last year. Also assume that the selling price remains the same as last year and that the market will purchase at least another 29,120 lbs of fish. If the managers of Nash Salmon wish to sell more salmon, what should they be willing to pay to purchase more fish? (Hint: This type of decision is different from the one in the previous part. Before you begin, identify the type of non-routine decision, the decision options, and the relevant information for this decision.) (Round answer to 2 decimal places, e.g. 5.35.) Willing to pay: s per lb salmon Exercise 4.22 Tamarisk Inc. produces organic cranberry juice from cranberries it farmed. Unfortunately, it has been a bad year for cranberries because of severe cold weather. Tamarisk has only 9,700 litres of juice. It usually sells 14,800 litres at $3.00 per litre. The variable costs of farming the cranberries are $0.55 per litre. Tamarisk has loyal customers, but its managers are worried that the company will lose customers if it does not have juice available for sale when people stop by the farm. A neighbour is willing to sell 5,100 litres of extra cranberry juice at $2.90 per litre. (b) Using the general decision rule, what is the most per litre that Tamarisk's managers would be willing to pay for additional juice? (Round all entries to 2 decimal places, e.g. 1.25.) Managers would be willing to pay up to Question Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER Exercise 4.30 Pharoah Systems produces and sells speakers and CD players. The following information been collected about the costs related to the systems: Selling price per unit $71 Production costs per unit Direct materials $24 Direct labour 15 Variable overhead Total fixed overhead $339,840 Pharoah normally produces 23,600 of these systems per year. The managers have recently received an offer from Mexican company to produce these systems for $49 each. The managers estimate that $259,600 of Pharoah's fixed costs could be eliminated if they accept the offer. Perform a quantitative analysis for the decision, and present your results in a schedule. (Round entries for this part to 2 decimal places, e.g. 12.55.) Make Buy Purchase price Variable costs: Direct materials Direct labour Variable overhead Avoidable fixed cost Total S $ Pharoah should Under the general decision rule for this type of decision, what production level is required for Pharoah's managers to be indifferent? Production level: systems Exercise 4.21 Blue Corporation currently manufactures a subassembly for its main product. The costs per unit are as follows: Direct materials $ 3.20 Direct labour Variable overhead 13.70 Fixed overhead 26.20 Total $74.20 31.10 Regina Corp. has contacted Blue with an offer to sell it 5,300 subassemblies for $54.40 each. Should Blue make or buy the subassemblies? Create a schedule that shows the total quantitative differences between the two alternatives. (Round all entries to 2 decimal places, e.g. 1.25.) Cost to make $ per unit Cost to buy $ per unit Blue should the subassemblies. The accountant decides to investigate the fixed costs to see whether any incremental changes will occur if the subassembly is no longer manufactured. The accountant believes that Blue will eliminate $52,470 of fixed overhead if it accepts the proposal. Does this new information change the decision? (Round all entries to 2 decimal places, e.g. 1.25.) Cost to make $ Cost to buy $ Blue should the subassemblies