Mason Company manufactures a DVD player called Orlicon. The company sells the player to discount stores throughout the country. This player is significantly less expensive than similar products sold by Mason's competitors, but the Orlicon offers just DVD playback, compared with DVD and Blu-ray playback offered by competitor Riley Manufacturing. Furthermore, the Orlicon has experienced production problems that have resulted in significant rework costs. Riley's model has an excellent reputation for quality. As a result of the actions taken, quality has significantly improved in 2017 while rework and unit costs of the Orlicon have decreased. Mason has reduced manufacturing capacity because capacity is no longer needed to support rework. Mason has also lowered the Orlicon's selling price to gain market share and unit sales have increased. Information about the current period (2017) and last period (2016) follows. (Click the icon to view the information.) a (Click the icon to view additional information.) Read the requirements. Requirements 1. Calculate the amount and cost of (a) unused manufacturing capacity and (b) unused selling and customer-service capacity at the beginning of 2017 based on actual production and actual number of customers served in 2017. 2. Suppose Mason can add or reduce its selling and customer-service capacity in increments of 10 customers. What is the maximum amount of costs that Mason could save in 2017 by downsizing selling and customer-service capacity? 3. Mason, in fact, does not eliminate any of its unused selling and customer-service capacity. Why might Mason not downsize? Print Done Data Table - X 2016 2017 1. Units of Orlicon produced and sold 12,000 2. Selling price 3. Direct materials used (kits*) 10,000 93 $ 14,000 27 $ 7,000 4. Direct material cost per kit* 24,000 17,000 306,000 432,000 $ 18 5. Manufacturing capacity in kits processed 6. Total conversion costs 7. Conversion cost per unit of capacity (row 6 / row 5) 8. Selling and customer-service capacity 9. Total selling and customer-service costs 10. Selling and customer-service capacity per customer (row 9 / row 8) * A kit is composed of all the major components needed to produce a DVD player. 95 customers 19,000 $ 95 customers 19.950 200 $ 210 More Info - X Conversion costs in each year depend on production capacity defined in terms of kits that can be processed, not the actual kits started. Selling and customer-service costs depend on the number of customers that Mason can support, not the actual number of customers it serves. Mason has 76 customers in 2016 and 83 customers in 2017. Print Done Requirement 1. Calculate the amount and cost of (a) unused manufacturing capacity and (b) unused selling and customer-service capacity at the beginning First, calculate the amount and cost of (a) unused manufacturing capacity. Cost of unused capacity
