TutStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,440 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is limited to 6,100 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums: $237.00 WVD Drums Selling price per drum Cost per drum: Direct materials $52.10 Direct labor ($40 per hour) 8.00 Manufacturing overhead ($1.35 variable) 17.70 Selling and administrative expense(.75 variable) 34.20 Margin per drum 112.00 $125.00 Management believes 7,450 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Harcor Industries, Inc., a supplier of quality products, would be able to provide up to 5,100 WVD-type drums per year at a price of $204 per drum, which TufStuff would resell to its customers at its normal selling price. Megan Flores, TufStuff's production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require 0.5 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TutStuff could sell up to 2,040 bike frames per year to bike manufacturers at a price of $635 each. The accounting department has provided the following data concerning the proposed new product: + $635.00 Bike Frames Selling price per frame Cost per frame: Direct materials $112.60 Direct labor ($18 per hour) 64.00 Manufacturing overhead ($1.90 variable) 50.79 Selling and administrative expense($3.50 variable) 103.52 Margin per frame 330.91 $304.09 The bike frames could be produced with existing equipment and personnel. (Key note: fixed costs overall does not change for manufacturing and selling and administration). Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building, but some of it is variable. The variable manufacturing overhead has been estimated at $1.35 per WVD drum and $1.90 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier. Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $.75 per WVD drum whether made or purchased and would be $3.50 per bike frame. KEY NOTE: Fixed costs remain substantially the same under all options. Requirements, (separate Excel tab for each requirement named accordingly, Part 1, 2, 3): 1. In proper format calculate the contribution margin per the welding machine constraint for a WVD drum and a bike frame. 2. In proper format prepare a variable costing income statement for the current situation where TufStuff can manufacture and sell 6,100 drums. 3. In class we discussed the importance of being a business person first, then an accounting professional. The case information presents two options to improve overall performance. You are required to model both a and b. Complete a and then put b under a. a. Sell a maximum number of drums, using the existing capacity to produce 6,100 drum and outsource the remaining to enable selling a total of 7,450 drums. Bikes would not be produced under this situation. b. Make and sell 2,040 bikes, use the remaining capacity to make and sell WVD drums, and outsource the remaining production need to meet the market demand of 7,450 drum. c. Under b, in a carefully crafted response, make a decision on what you would recommend, and explain why a. or b. is the choice. Include in your response two major concerns as part of the decision. Set up this page by merging cells and set the format to the upper left. We will demo this step in class