The XBlast manufactures an$$ entry$-$level hoverboard,$$ HOV$-$X$.$ Pursuing a$$ cost$-$leadership strategy, the company has tried to improve quality and reduce costs. As a result of the actions taken over the last$$ year, quality has significantly improved in $2020$ while rework and unit costs of the$$ HOV$-$X have decreased. XBlast has reduced manufacturing capacity because capacity is no longer needed to support rework. XBlast has also lowered$$ HOV$-$X$\text{'}$s selling price to gain market share and unit sales have increased.

$2019$

$2020$

$1.$

Units of HOV$-$X produced and sold

$15,000$

$25,000$

$2.$

Selling price

$$125$

$$100$

$3.$

Direct materials used $($kits$)$

$18,000$

$27,000$

$4.$

Direct material cost per kit$$

$$30$

$$30$

$5.$

Manufacturing capacity in kits processed

$30,000$

$28,000$

$6.$

Total conversion costs

$$660,000$

$$616,000$

$7.$

Conversion cost per unit of capacity $($row $6-$: row $5)$

$$22$

$$22$

$8.$

Selling and customer$-$service capacity

$200$ customers

$200$ customers

$9.$

Total selling and customer$-$service costs

$$35,000$

$$38,000$

$10.$

Selling and customer$-$service capacity per customer $($row $9-$: row $8)$

$$175$

$$190$

$$ A kit is composed of all the major components needed to produce a hoverboard.

Conversion costs in each year depend on production capacity defined in terms of kits that can be$$ processed, not the actual kits started. Selling and$$ customer$-$service costs depend on the number of customers that XBlast can$$ support, not the actual number of customers it serves. XBlast has $125$ customers in $2019$ and $150$ customers in $2020.$

Requirement $1.$ Calculate the amount and cost of$($a$)$ unused manufacturing capacity and$($b$)$ unused selling and$$ customer$-$service capacity at the beginning of $2020$ based on actual production and actual number of customers served in $2020.$

$$First$,$ calculate the amount and cost of$($a$)$ unused manufacturing capacity.

$\backslash$times

$=$

Cost of unused capacity

$\backslash$times

$=$

Part $2$

Now calculate the amount and cost of$($b$)$ unused selling and$$ customer$-$service capacity.

The amount of unused selling and customer$-$service capacity is

customers and the cost of unused selling and

customer$-$service capacity is

$.$

Part $3$

Requirement $2.$ Suppose XBlast can add or reduce its selling and$$ customer$-$service capacity in increments of $10$ customers. What is the maximum amount of costs that XBlast could save in $2020$ by downsizing selling and$$ customer$-$service capacity?

XBlast can reduce selling and customer$-$service capacity by another

customers. XBlast will save another

$.$

This is the maximum amount of costs XBlast can save in $2020.$

Part $4$

Requirement $3.$ XBlast$,$ in$$ fact, does not eliminate any of its unused selling and$$ customer$-$service capacity. Why might XBlast not$$ downsize?

Select two statements that would explain why XBlast might not downsize.

Not reducing significant capacity by laying off employees boosts employee morale and keeps employees more motivated and productive.

XBlast may choose not to downsize because it projects sales increases that would lead to a greater demand for and utilization of selling and$$ customer$-$service capacity. It is difficult to reduce and then immediately increase capacity.

XBlast may choose not to downsize because it wants to appear as though it has the capacity to produce many more units for potential customers.

XBlast may choose not to downsize because competitors will view it as a sign of weakness if they downsize.