(PLEASE DO IN EXCEL AND SHOW YOUR WORK!!!! Thank you!)

This project requires the solution to be prepared using an excel spreadsheet. Email your completed spreadsheet to me by 11:59 pm Sunday, December 3, 2017. However, if you prefer to submit a hard copy of your solution, you can submit it during our last class on Friday, December 1, 2017, or drop it off in my office anytime during the day on December 1st.

The Scan House Company manufactures a number action figures. One of the action figures, R2-D2, is currently in production for the release of the latest Star Wars movie coming out next month. The company normally produces and sells 60,000 R2-D2s each year at a selling price of $32 per unit. The companys unit costs at this level of activity are given below:

Direct materals .................................... $10.00

Direct labor .......................................... 4.50

Variable manufacturing overhead ........ 2.30

Fixed manufacturing overhead ............ 5.00 ($300,000 total)

Variable selling expenses .................... 1.20

Fixed selling expenses ........................ 3.50 ($210,000 total)

Total cost per unit ................................ $26.50

A number of questions relating to the production and sale of R2-D2 follow. Each question is independent.

Required (using an excel spreadsheet):

1. Assume that Scan House has sufficient capacity to produce 90,000 R2-D2s each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. What is the financial advantage (disadvantage) of investing an additional $80,000 in fixed selling expenses? Would the additional investment be justified?

2. Assume again that Scan House has sufficient capacity to produce 90,000 R2-D2s each year. A customer in a foreign market wants to purchase 20,000 R2-D2s. If Scan House accepts this order it would have to pay import duties on the R2-D2 of $1.70 per unit and an additional $9,000 for permits and licenses. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. What is the break-even price per unit on this order?

3. The company has 1,000 R2-D2s on hand that have some irregularities and are therefore considered to be seconds. Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? Explain.

4. Due to a strike in its suppliers plant, Scan House is unable to purchase more material for the production of R2-D2s. The strike is expected to last for two months. Scan House Company has enough material on hand to operate at 30% of normal levels for the two-month period. As an

alternative, Scan House could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 60% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two- month period.

a) How much total contribution margin will Scan House forgo if it closes the plant for two months?

b) How much total fixed cost will the company avoid if it closes the plant for two months?

c) What is the financial advantage (disadvantage) of closing the plant for the two-month period?

d) Should Scan House close the plant for two months?

5. An outside manufacturer has offered to produce 60,000 R2-D2s and ship them directly to Scan Houses customers. If Scan House accepts this offer, the facilities that it uses to produce R2-D2s would be idle; however, fixed manufacturing overhead costs would be reduced by 75%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Scan Houses avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?