Team Exercise 3

Texas Manufacturing Company produces products A, B, C, and D through a joint process. The joint costs amount to $250,000.

Product	Units Produced	Sales Value at Split-Off	Additional Costs of Processing	Sales Value After Processing
A	1,500	$15,000	$7,000	$25,000
B	2,500	$50,000	$12,000	$55,000
C	2,000	$45,000	$6,500	$60,000
D	3,000	$65,000	$15,000	$75,000

If A is processed further, profits of A will:

Increase by $7,000

Increase by $3,000

Decrease by $7,000

Decrease by $3,000

The Sees Candy produces products A, B, and C. Although the company could sell up to 50 units of A, 60 units of B, and 50 units of C each week, a limitation of 400 machine-hours per week prevents Sees from meeting these sales demands. The product information is as follows:

	A		B		C
Unit selling price	$190	$125		$175
Variable manufacturing costs:	$156	$88		$115
Variable selling and admin. costs	$7	$7		$7
Machine-hours per unit	3	3		4

There are no fixed selling or administrative expenses. Fixed manufacturing costs are $2,500 per week.

Required:

a. Develop a schedule indicating the order in which the company should allocate machine-hours to each product.

b. Develop a schedule indicating the number of units of each product that the company should produce each week.

c. Develop a schedule indicating the company's weekly profit or loss from implementing this production schedule.

Omega Drilling LLC processes crude oil into joint products motor oil and oil by products. The crude oil cost $1.50 per gallon. It cost $25 to convert 25 gallons of crude oil in 15 gallons of motor oil and 10 gallons of oil by products. Oil by products can be sold immediately for $1.50 a gallon or processed further into liquid gasoline at an additional cost of $1.25 a gallon. Liquid gasoline can then be sold for $3.25 per gallon.

Required:

Determine whether oil by products should be sold or processed further into liquid gasoline

Information on Psi Phi Inc.s three products are as follows:

A B C

Unit sales per month 1,600 3,000 1,600

Selling price per unit . $10.00 $15.00 $8.00

Variable cost per unit ... (10.40) (12.00) (4.00)

Unit contribution margin .. $(0.40) $3.00 $4.00

Required:

Determine the effect of each of the following situations would have on monthly profits. Each situation should be evaluated independently of all others.

Product A is discontinued.

Product A is discontinued and the subsequent loss of customers cause sales of Product B to decline by 200 units.

The selling price of Product A is increased to $11.00 with a sales decrease of 300 units.

The price of Product B is increased to $16.00 with a resulting sales decrease of 400 units. However, some of the customers shift to Product A; sales of Product A increase by 280 units.

Product A is discontinued, and the plant in which Product A was produced is used to produce Product D, a new product. Product D has a unit contribution margin of $0.60. Monthly sales of Product D are predicted to be 1,200 units.

The selling price of Product C is increased to $9.00 and the selling price of Product B is decreased to $14.00. Sales of Product C decline by 400 units, while sales of Product N increase by 600 units.