(Problem 1)

Elite Products Inc. manufactures fuel injection systems for high performance V8 engines. The systems can be used on any make of car by installing the correct software chip for that make. The company is currently at 80% of capacity manufacturing 30,000 systems per year. The systems sell for $1,200 each and are sold to independent high-performance retail auto part stores. Elite Products Inc. has been approached by HighSpeed Auto Inc. a large auto parts chain to provide them with the fuel injection system. In contract negotiation, the chain has agreed to purchase 7,500 systems which will get Elite Product's production to full capacity. However, HighSpeed Auto Inc. wants a ten percent quaintly discount on the additional 7,500 systems it purchases or it will not enter into the contract.

The current manufacturing costs for the systems are as follows:

Raw material: $575/unit

Direct labor: $150/unit

Variable Mfg. OH: $ 80/unit

Fixed Mfg OH: $9,000,000/year

Other costs of the company are as follows:

Variable Selling Exp : $ 6/unit

Variable G&A Exp: $ 1/unit

Fixed Selling Exp: $2,000,000/year

Fixed G&A Exp: $1,500,000/year

Since Elite Products will be increasing production by twenty percent the following cost will change. Fixed manufacturing overhead will increase by $140,000 per year because of higher electrical usage. Because of a sales commission break to be paid for any units sold above 30,000 per year variable Selling expense will increase by $2 per unit for the additional 7,500 units only. Raw Material cost will drop to $517 per unit for the additional production only because of a quantity discount from the firm's vendors on orders over 30,000 units.

Required:

Arrange Contribution Margin Income Statement for the firm before and after accepting the contract. Use the attached template provided.

(Problem 2)

Raytherm makes heat shrinkable tubing for the electronics industry. The following standards have been developed by the industrial engineering department of Raytherm for inch heat shrinkable tubing:

Raw Material Standard:

Irradiated polyethylene plastic: .1 ounces per foot of tubing at 5 cents per ounce ($.80 per pound).

Direct Labor Standard:

.001 hours per foot at $25 per hour including benefits.

During the month 900,000 feet of tubing was produced and the following costs were incurred:

Actual raw material purchased:

12,250lbs (196,000oz) for a total cost of $9,500.

Actual raw material used;

6,225 lbs (99,600oz)

Actual direct labor incurred:

Direct labor hours incurred: 980

Total payroll cost including benefits: $26,700

Required: Use the following equations to calculate the following variances:

PPV=(AP-SP)AQP

MUV=(AQ-SQ)SP

LRV=(AR-SR)AH

LEV=(AH-SH)SR