The Xtra 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. Xtra has reduced manufacturing capacity because capacity is no longer needed to support rework. Xtra has also lowered HOV-X's selling price to gain market share and unit sales have increased. Information about the current period (2020) and last period (2019) follows: (Click the icon to view the information.) (Click the icon to view additional information.) Read the requirements. 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. Amount of unused capacity Cost of unused capacity (a) Manufacturing (b) Selling and customer service Requirement 2. Suppose Xtra can add or reduce its selling and customer-service capacity in increments of 10 customers. What is the maximum amount of costs that Xtra could save in 2020 by downsizing selling and customer-service capacity? The maximum amount of costs the company could save in 2020 by downsizing selling and customer-service capacity is Requirement 3. Xtra, in fact, does not eliminate any of its unused selling and customer-service capacity. Why might Xtra not downsize? Select two statements that would explain why Xtra might not downsize. Not reducing significant capacity by laying off employees boosts employee morale and keeps employees more motivated and productive. Xtra may choose not to downsize because it wants to appear as though it has the capacity to produce many more units for potential customers. Xtra 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. Xtra may choose not to downsize because competitors will view it as a sign of weakness if they downsize. Data table 2019 2020 1. Units of HOV-X produced and sold 4,000 11,000 2. Selling price $ 92 $ 81 3. Direct materials used (kitsa) 9,000 7,000 4. Direct material cost per kita $ 35 $ 35 5. Manufacturing capacity in kits processed 17,000 14,000 6. Total conversion costs $ 425,000 $ 350,000 7. Conversion cost per unit of capacity (row 6 row 5) $ 25 $ 25 8. Selling and customer-service capacity 95 customers 95 customers 9. Total selling and customer-service costs $ 15,200 $ 20,900 10. Selling and customer-service capacity per customer (row 9 row 8) $ 160 $ 220 a A kit is composed of all the major components needed to produce a hoverboard. More info - 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 Xtra can support, not the actual number of customers it serves. Xtra has 77 customers in 2019 and 84 customers in 2020. Print Done