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Chapter 8-Homework Makers Mfg, produces a variety of consumer goods sold in bargain retail stores. Makersis considering producing a new product, and is deciding between two alternatives. Product A will require 4,000 direct labor hours, 2,000 machine hours, and $50,000 in direct materials each year. Product B will require 1,000 direct labor hours, 7,000 machine hours, and $45,000 in direct materials each year 1. New workers would need to be hired for either project; workers are paid $15 per hour Electrici ty for the equipment is $20 per machine hour. The products would be produced on existing manufacturing equipment. Depreciation on this equipment is allocated based on machine hours at a rate of $12 per hour. Makers will manufacture the same number of units, regardless of the product chosen. Both products would be sold for the same price Which product would be more profitable to produce? A) Product A B) Product B Breckitt & Co. provides water treatment supplies to cities and counties. The R&D department has developed two potential new products: one is a new organic chemical compound that will bind with heavy metals and then be filtered out of the water, and the other is a plant-based filter that will actually filter out the metals. The products are similar enough to be produced on existing equipment, but the company would not be able to produce both of them. 2. Breckitt projects the following revenue and cost information for each of the products: Compound: Sales Price: $2,300/container Total sales in Year 1: 15,000 containers Direct materials: $200/container Direct Labor: $15/hour, each container requires 12 hours of direct labor Fixed overhead allocation: $60/machine hour (each container requires 20 machine hours) Variable overhead allocation: $60/direct labor hour Chapter 8-Homework Filter Sales Price: $1,300/filter Total sales in Year 1: 20,000 filters Direct materials: $150/filter Direct Labor: $15/hour, each filter requires 5 hours of direct labor Fixed overhead allocation: $60/machine hour (each filter only requires 2 machine hours) Variable overhead allocation: S50/direct labor hour Which product would be most profitable for Breckitt to produce? A) Compound B) Filter Bubbling Beverages Co. produces a soft drink that they sell to the local fast-food restaurants in their rural community. The drink is popular among the locals, and recently caught the attention of a major restaurant chain headquartered nearby. This company wants to sign a 3. A) Compound B) Filter Bubbling Beverages Co. produces a soft drink that they sell to the local fast-food restaurants in their rural community. The drink is popular among the locals, and recently caught the attention of a major restaurant chain headquartered nearby. This company wants to sign a contract with Bubbling to supply their stores around the country 3. Bubbling's factory has the capacity to produce 100,000 gallons of soft-drink concentrate every year, but they are only currently producing 40,000. The restaurant chains wants to contract with Bubbling to produce 60,000 gallons for their stores, and is willing to pay $3.50 per gallon. Bubbling does not have the capacity to expand their facilities. Local customers pay $4.50 per gallon for the drink. To produce one gallon of soft drink, Bubbling has to pay $0.50 for direct materials, and about $0.40 for direct labor. Overhead is allocated at a rate of $1.00 per gallon for variable overhead, and $2.00 per gallon for fixed overhead What would be the differential gain or loss on this contract? A) $26,000 B) S73,040 C) $85,000 D) $96,000 E) S98,500 Chapter 8- Homework Soft Seats produces chairs and couches for reception areas and executive suites. Historically SoftSeats has manufactured their own cushions for the chair they sell. However, a cushion manufacturer has recently approached SoftSeats with an offer to produce their cushions for them for $48 per cushion. SoftSeats incurs the following costs in the production of the seat cushions: $10 for direct materials, $20 for direct labor, $10 for variable overhead, and $10 for fixed overhead. Management is wondering whether they should accept the offer What would be the increase or decrease in per-unit costs if the cushions were purchased from the outside supplier? A) Not enough Information to Solve B) $5/ unit increase C) $7.50/unit decrease D) $8.00/ unit increase E) $12.50/unit decrease E) $12.50/unit decrease Rough NT Tough (RNT) manufactures outdoors accessories. Management is considering producing the poles for their tents rather than continuing to purchase from their current supplier. The supplier charges $60 per set of poles. s. The cost accounting team has estimated that RNT would incur the following costs if they were to produce the poles instead: $40 per set for direct materials, $10 per set for direct labor, $7 per set for variable overhead, and $20 per set for fixed overhead application. RNT currently has unused production capacity and manufacturing equipment that could be used to manufacture the poles. RNT has planned to sell 5,000 tents this year. What would the change in overall cost be for the company if RNT produced the poles rather than purchasing them? A) (S15,000)...decrease B) SO C) $5,000 increase D) $10,000 increase E) $1,000,000,000 increase Stateside Sahara Services offers guided tours of the deserts of southern Arizona and Califomia. Management is currently concerned about one of their services in particular. Tours of the Sonoran Desert near Tucson, AZ, have recently reflected net losses. The following information relates to the costs involved with the Sonoran tours: 6. Revenue: $600/tour (up to 6 people on the tour) Direct Labor: 15 hours,@ $16/hour Supplies (water, gas, food, etc.): $150/tour Scheduling expenses (treated as variable overhead): $75/tour Vehicle and equipment depreciation (allocation of a fixed cost): $75/tour Average number of Sonoran tours per month: 15 Management is considering discontinuing the Sonoran part of their business. By how much would monthly Operating Income increase or decrease if the Sonoran segment were dropped? A) ($1,000) decrease B) ($275) decrease C) SO D) $1,580 increase E) $2,025 decrease 7. Chang Weaving is a cloth manufacturing company based in China, which imports threads of various fibers and exports both bolts of cloth and finished products. Chang recently began purchasing and processing Rayon fiber, which is used in many sporting clothes. Chang is considering whether to sell bolts of Rayon cloth or to further process the cloth into sporting outfits Information regarding the production process for Rayon is as follows: To produce a bolt of cloth: Direct Materials: $1,000 Direct Labor: 60 hours at $20/hour Variable Overhead: 100 machine hours at a rate of $13/machine hour Fixed overhead: $10/machine hour Selling price of a bolt of cloth: $5,000 Extra costs to further process a bolt of cloth into finished goods: Direct Materials: $100 Direct Labor: 250 hours, at $20/hour Variable Overhead: 20 machine hours, at a rate of S13/machine hour Fixed overhead: $10/machine hour Selling price of items produced from one bolt of cloth: S11,000 Direct Labor: 250 hours, at $20/hour Variable Overhead: 20 machine hours, at a rate of $13/machine hour Fixed overhead: $10/machine hour Selling price of items produced from one bolt of cloth: $11,000 Chapter 8- Homework What would be the differential income of producing the processing the cloth further? Should Chang process the cloth further or just sell the bolts of cloth? A) Sell the bolts of cloth as is B) Process the cloth further 8. GreenWood Co. recyeles plastics to produce a variety of products. One of their processes 8. GreenWood Co. recycles plastics to produce a variety of products One of their processes yields two different outputs: Construction-grade (used in outdoors benches and tables), and Compression-type, used to create ergonomic flooring. One production run produces 200 pounds of Construction-grade plastics, and 100 pounds of Compression-type plastics. Green Wood can process the plastics further, or can sell the raw materials to other companies. The process to produce one batch (before the split-off point) requires $60 of direct materials, $200 of direct labor, and $80 of variable overhead, with an allocation of $50 of fixed overhead. At the split-off point, Construction-grade plastics sell for $2/pound, and Compression-type plastics sell for S1/pound. Further processing of one batch requires the following: Construction Direct Materials: $40 Direct Labor: $150 Variable Overhead: $50 Fixed Overhead: $10 Selling price of finished product: $600 per batch Compression Direct Materials: $30 Direct Labor: $40 Variable Overhead: $20 Fixed Overhead: $10 Selling price of finished product: $250 per batch Direct Labor: $40 Variable Overhead: $20 Fixed Overhead: $10 Selling price of finished product: $250 per batch Ifthe optimal choices regarding each product are made, what is the Gross Profit realized on one batch? A) $40/batch B) S60/batch C) S100/batch D) $160/ batch E) $240/batch Chapter 8-Homework 9. In the process of making hummus, Near-East Foods is left with a slurry of chickpea husks and other left-over ingredients. Although the slurry has no real commercial value, the company has found that local farmers are willing to pay SS/bucket of the slurry (as a source of feed for livestock). The manufacture of one batch (100) gallons of hummus requires $50 of direct materials $120 of direct labor, and $20 of overhead. Making one batch also results in 10 buckets of slurry, which take an additional $20 to process for sale to local farmers. Hummus sells for $40/gallon What is the amount charged to Cost of Goods Sold for the sale of one batch of hummus and the byproducts? A) S60 B) $115 C) $120 D) S130 E) $160 10. Patriotic Pyros (PP) is a fireworks manufacturing company. Annual celebrations are rapidly approaching, and PP only has 50 pounds of powder left (and their suppliers have run out as well). PP manufactures two types of fireworks: Aerials (for large venues) and Grounders 10. Patriotic Pyros (PP) is a fireworks manufacturing company. Annual celebrations are rapidly approaching, and PP only has 50 pounds of powder left (and their suppliers have run out as well). PP manufactures two types of fireworks: Aerials (for large venues) and Grounders (for home use) Management is wondering which fireworks should be produced with the remaining powder, in order to maximize profits. The following information shows the per-unit information regarding the production and sale of these fireworks: Pounds of powder Direct materials Direct labor Variable overhead Fixed overhead Selling price Aerials 2 lbs. $5.00 $6.00 $1.00 $2.00 S50.00 Grounders 0.75 lbs. $1.25 $3.00 S0.50 $1.00 $20.00 Assume that selling costs are negligible at this point, given the current market for firew and PP's established network. orks Which type of firework would be the most profitable for PP to produce? A) Arials B) Grounders