Required information Problem 7-47 Continuation of Preceding Problem; Activity-Based Costing; Advanced Manufacturing Systems; Ethical Issues (LO 7-4, 7-9, 7-10) [The following information applies to the questions displayed below.)

Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed. An activity-based costing study has revealed that Jupiter's $150,000 of fixed costs include the following components:

Setup (40 setups at $400 per setup). $16,000

Engineering (500 hours at $25 per hour) $12,500

Inspection (1,000 inspections at $30 per inspection). $30,000

General factory overhead + $61,500

Total = $120,000

Fixed selling and administrative costs (+) $30,000

Total fixed costs = $150,000

Management is considering the installation of new, highly automated manufacturing equipment that would significantly alter the production process. In addition, management plans a move toward just-in-time inventory and production management. If the new equipment is installed, setups will be quicker and less expensive. Under the proposed JIT approach, there would be 300 setups per year at $50 per setup. Since a total quality control program would accompany the move toward JIT, only 100 inspections would be anticipated annually, at a cost of $45 each. After the installation of the new production system, 800 hours of engineering would be required at a cost of $28 per hour. General factory overhead would increase to $166,100. However, the automated equipment would allow Jupiter to cut its unit variable cost by 20 percent. Moreover, the more consistent product quality anticipated would allow management to raise the price of electronic games to $26 per unit. (Ignore income taxes.)

Question 7-47, Part 1

Upon seeing the ABC analysis given in the problem, Jupiter's Vice President of Manufacturing exclaimed to the controller, I thought you told me this $300,000 cost was fixed. These don't look like fixed costs at all. What you're telling me now is that setup costs us $800 every time we set up a production run. What gives?" As Jupiter's Controller, write a short memo to the VP of Manufacturing explaining what is happening.

Required information Problem 7-47 Continuation of Preceding Problem; Activity-Based Costing; Advanced Manufacturing Systems; Ethical Issues (LO 7-4, 7-9, 7-10) [The following information applies to the questions displayed below.) Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed. An activity-based costing study has revealed that Jupiter's $150,000 of fixed costs include the following components: Setup (40 setups at $400 per setup) Engineering (500 hours at $25 per hour) Inspection (1,000 inspections at $30 per inspection) General factory overhead Total Fixed selling and administrative costs Total fixed costs $ 16,000 12,500 30,000 61,500 $120,000 30,000 $150,000 Management is considering the installation of new, highly automated manufacturing equipment that would significantly alter the production process. In addition, management plans a move toward just-in-time inventory and production management. If the new equipment is installed, setups will be quicker and less expensive. Under the proposed JIT approach, there would be 300 setups per year at $50 per setup. Since a total quality control program would accompany the move toward JIT, only 100 inspections would be anticipated annually, at a cost of $45 each. After the installation of the new production system, 800 hours of engineering would be required at a cost of $28 per hour. General factory overhead would increase to $166,100. However, the automated equipment would allow Jupiter to cut its unit variable cost by 20 percent. Moreover, the more consistent product quality anticipated would allow management to raise the price of electronic games to $26 per unit. (Ignore income taxes.) Question 7-47, Part 1 Upon seeing the ABC analysis given in the problem, Jupiter's Vice President of Manufacturing exclaimed to the controller, I thought you told me this $300,000 cost was fixed. These don't look like fixed costs at all. What you're telling me now is that setup costs us $800 every time we set up a production run. What gives?" As Jupiter's Controller, write a short memo to the VP of Manufacturing explaining what is happening. Required information Problem 7-47 Continuation of Preceding Problem; Activity-Based Costing; Advanced Manufacturing Systems; Ethical Issues (LO 7-4, 7-9, 7-10) [The following information applies to the questions displayed below.) Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed. An activity-based costing study has revealed that Jupiter's $150,000 of fixed costs include the following components: Setup (40 setups at $400 per setup) Engineering (500 hours at $25 per hour) Inspection (1,000 inspections at $30 per inspection) General factory overhead Total Fixed selling and administrative costs Total fixed costs $ 16,000 12,500 30,000 61,500 $120,000 30,000 $150,000 Management is considering the installation of new, highly automated manufacturing equipment that would significantly alter the production process. In addition, management plans a move toward just-in-time inventory and production management. If the new equipment is installed, setups will be quicker and less expensive. Under the proposed JIT approach, there would be 300 setups per year at $50 per setup. Since a total quality control program would accompany the move toward JIT, only 100 inspections would be anticipated annually, at a cost of $45 each. After the installation of the new production system, 800 hours of engineering would be required at a cost of $28 per hour. General factory overhead would increase to $166,100. However, the automated equipment would allow Jupiter to cut its unit variable cost by 20 percent. Moreover, the more consistent product quality anticipated would allow management to raise the price of electronic games to $26 per unit. (Ignore income taxes.) Question 7-47, Part 1 Upon seeing the ABC analysis given in the problem, Jupiter's Vice President of Manufacturing exclaimed to the controller, I thought you told me this $300,000 cost was fixed. These don't look like fixed costs at all. What you're telling me now is that setup costs us $800 every time we set up a production run. What gives?" As Jupiter's Controller, write a short memo to the VP of Manufacturing explaining what is happening