Stanley Burrell founder of a company named Hammer Time Inc. Hammer Time Inc produces specialty functional novelty hammers in the image of Stanley Burrell himself, aka MC Hammer. The three best selling/most popular products sold by Hammer Time Inc. are Hammer Head Hammers, Hammer Pants Hammers, and Please Hammer Don't Hurt Em Mini Hammers.

The sales price per unit of the Hammers are as follows

Head $80

Pants $110

Mini $25

The COGS are 60% of the current prices: The per unit COGS does not change if the price or volume changes.

The total factory overhead is allocated to each product based on the activities list. Note the total factory overhead does not change. See data sheet as you entered exam.

The total administrative overhead = $14,551,200 and is separate (in addition to) the total factory overhead. It is allocated proportionally using each products cost (COGS) per unit.

1. What is the break-even amount (in units) for each product? (14 points)

2. Briefly explain (supported by numbers) which product does an increase in volume most benefit Hammer Time Inc.? (8 points)

3. Briefly explain (supported by numbers) to which product is an increase in price most beneficial? (8 points)

4. What limitations does Hammer Time Inc. impose on itself because of the way it handles overhead? (6 points)

Exam Data Sheet

Total Factory Overhead is divided into five activities as follows

Activity Activity Cost Activity Base Total Usage

Set-up/Handling $2,500,000 Process Transfers 1,500 process transfers

Metal Fabrication $4,100,000 Pounds Processed 500,000 pounds processed

Plastic Fabrication $1,856,000 Set-ups 800 set-ups

Assembly $2,700,000 Labor Hours 144,000 labor hours

Finishing $1,792,800 Machine Hours 1,800 machine hours

Activity Hammer Head Hammer Pants PH Dont Hurtem Mini

Set-up/Handling 480 Transfers 927 Transfers 93 Transfers

Metal Fabrication 230,000 lbs 200,066 lbs 69,934 lbs

Plastic Fabrication 260 Set-ups 417 Set-ups 123 Set-ups

Assembly 47,840 labor hrs 83,361 labor hrs 12,799 labor hrs

Finishing 250 machine hrs 1,400 machine hrs 150 machine hrs