Question
Part I: Wilson Company sells two products, X and Y. The company expects to sell 100,000 units of X at an average price of $20
Part I:
Wilson Company sells two products, X and Y. The company expects to sell 100,000 units of X at an average price of $20 per unit during the upcoming year. Actual results are 98,600 units sold at an average price of $22 per unit.
Required: Calculate the overall sales variance, the sales price variance, and the sales volume variance. Indicate whether each variance is favorable or unfavorable.
Part II:
Capitol Manufacturing Co. is currently making Part XYZ, producing 80,000 units annually. The part is used in the production of several products made by Capitol. The per-unit cost for XYZ is as follows:
Direct Materials | $95.00 |
Direct Labor | 22.00 |
Variable Overhead | 7.50 |
Fixed overhead | 8.00 |
Total | $132.50 |
Of the total fixed overhead assigned to XYZ, $32,000 is direct fixed overhead (the annual rental cost of machinery used to manufacture Part XYZ), and the remainder is common fixed overhead. An outside supplier has offered to sell the part to Capitol for $120. There is no alternative use for the facilities currently used to produce the part.
Should Capitol Manufacturing Co. make or buy Part XYZ? Briefly describe three qualitative factors that the company should consider when making its decision.
Part III:
A company is considering two different and mutually exclusive projects, Alpha and Beta, where both have a five-year life and require an investment of $420,000. The cash flow patterns for each project are given below:
Alpha: | Even cash flows of $140,000 per year | |
Beta: | Year 1 | $240,000 |
Year 2 | $200,000 | |
Year 3 | $180,000 | |
Year 4 | $100,000 | |
Year 5 | $60,000 |
Required: Calculate the payback period for each project. Which project, Alpha or Beta, should be accepted based on payback analysis? Explain.
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