TufStuff, 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 2,420 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 5,525 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 $233 00 WVD Drums Selling price per drun Cost per drums Direct materials Direct labor ($39 per hour) Manufacturing overhead Selling and administrative expense Margin per drum $52 10 7 80 17 10 34 00 111 00 $122 00 Management believes 7,425 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 4,525 WVD type drums per year at a price of $201 per drum, which TulStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TufStuff's production manager, has suggested the company could make better use of the welding machine by manufacturing bike frames, which would require only 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 2,020 bike frames per year to bike manufacturers at a price of $344 each The accounting department has provided the following data concerning the proposed new product $344 00 Bike Frames Selling price per frame Cost per fram Direct materials Direct labor (18 per hour) Manufacturing overhead Selling and administrative expense Margin per frame $112 00 62 40 57 00 64 60 296 00 $48 00 The bike frames could be produced with existing equipment and personnel 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 $0 75 per WVD drum whether made or purchased and would be $3 40 per bike frame All of the company's employees direct and indirect are paid for full 40 00 hour work weeks and the company has a policy of laying off workers only in major recessions As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at TufStuff After all, direct means you can directly trace the cost to products If direct labor is not a variable cost, what is Another manager argued just as strenuously that direct labor should be considered a fixed cost at TufStuff No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary Everyone classified as direct labor works a regular 40 00 hour workweek and overtime has not been necessary since the company adopted Lean Production techniques Whether the welding machine is used to make drums or frames, hthathum Thallium As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at TufStuff After all, direct means you can directly trace the cost to products If direct labor is not a variable cost, what is Another manager argued just as strenuously that direct labor should be considered a fixed cost at TulStuff No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary Everyone classified as direct labor works a regular 40 00 hour workweek and overtime has not been necessary since the company adopted Lean Production techniques Whether the welding machine is used to make drums or frames the total payroll would be exactly the same There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require Rega Rega Reg 3 RegaA REGAB Reas Rego Regra Req7B Reg 4A Req 4B Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and or bike frames (if any) that should be manufactured Assume direct labor is a variable cost Purchased Manufactured WVD drums Bike frames A REGAB Reas Rear Reg 1 Reg 2 ReaTA Req 3 Req 4A Reg 4B Reg 5 Reg 6 Reg 7A Reg 78 20973 What is the increase (decrease) in net operating income that would result from this plan over current operations (Assume direct labor is a variable cost (Do not round intermediate calculations ) Increase (decrease) in net operating income Reg 7A RTE a Rea an Reg 1 Reg 2 Req 3 Req 4A Reg 4B Roq ABROGS Req 5 Req 6 Req 7A Req 7B Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and or bike frames (if any) that should be manufactured Assume direct labor is a fixed cost WVD drums Bike frames Purchased 3,900 0 Manufactured 3,525 2,020 Rea Reqz Reg 2 Req3 Req 1 REGAA REGAB Reg 3 Req 4A Reas REG78 Req 48 ReaG ReqTA Reg 5 Req 6 Req 7A Req 7B Compute the contribution margin per unit for (assume direct labor is a variable cost) (Do not round Intermediate calculations Round your answers to 2 decimal places ) Purchased WVD drums Manufactured WVD drums Manufactured bike frames Contribution Margin $ 31 25 per unit $ 171 00 per unit $ 164 30 per unit

Question

TufStuff, 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 2,420 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 5,525 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  $233 00 WVD Drums Selling price per drun Cost per drums Direct materials Direct labor ($39 per hour) Manufacturing overhead Selling and administrative expense Margin per drum $52 10 7 80 17 10 34 00 111 00 $122 00 Management believes 7,425 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 4,525 WVD type drums per year at a price of $201 per drum, which TulStuff would resell to its customers at its normal selling price after appropriate relabeling  Megan Flores, TufStuff's production manager, has suggested the company could make better use of the welding machine by manufacturing bike frames, which would require only 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 2,020 bike frames per year to bike manufacturers at a price of $344 each  The accounting department has provided the following data concerning the proposed new product  $344 00 Bike Frames Selling price per frame Cost per fram Direct materials Direct labor (18 per hour) Manufacturing overhead Selling and administrative expense Margin per frame $112 00 62 40 57 00 64 60 296 00 $48 00 The bike frames could be produced with existing equipment and personnel  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 $0 75 per WVD drum whether made or purchased and would be $3 40 per bike frame  All of the company's employees direct and indirect are paid for full 40 00 hour work weeks and the company has a policy of laying off workers only in major recessions  As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision  One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at TufStuff  After all,  direct  means you can directly trace the cost to products   If direct labor is not a variable cost, what is   Another manager argued just as strenuously that direct labor should be considered a fixed cost at TufStuff  No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary  Everyone classified as direct labor works a regular 40 00 hour workweek and overtime has not been necessary since the company adopted Lean Production techniques  Whether the welding machine is used to make drums or frames, hthathum Thallium As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision  One manager argued that direct labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at TufStuff  After all,  direct  means you can directly trace the cost to products   If direct labor is not a variable cost, what is   Another manager argued just as strenuously that direct labor should be considered a fixed cost at TulStuff  No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary  Everyone classified as direct labor works a regular 40 00 hour workweek and overtime has not been necessary since the company adopted Lean Production techniques  Whether the welding machine is used to make drums or frames the total payroll would be exactly the same  There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require  Rega Rega Reg 3 RegaA REGAB Reas Rego   Regra   Req7B Reg 4A Req 4B Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and or bike frames (if any) that should be manufactured   Assume direct labor is a variable cost  Purchased Manufactured WVD drums Bike frames A REGAB Reas Rear Reg 1 Reg 2 ReaTA Req 3 Req 4A Reg 4B Reg 5 Reg 6 Reg 7A Reg 78 20973 What is the increase (decrease) in net operating income that would result from this plan over current operations  (Assume direct labor is a variable cost  (Do not round intermediate calculations ) Increase (decrease) in net operating income Reg 7A RTE a Rea an Reg 1 Reg 2 Req 3 Req 4A Reg 4B Roq ABROGS Req 5 Req 6 Req 7A Req 7B Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and or bike frames (if any) that should be manufactured   Assume direct labor is a fixed cost  WVD drums Bike frames Purchased 3,900 0 Manufactured 3,525 2,020 Rea Reqz Reg 2 Req3 Req 1 REGAA REGAB Reg 3 Req 4A Reas REG78 Req 48 ReaG ReqTA Reg 5 Req 6 Req 7A Req 7B Compute the contribution margin per unit for (assume direct labor is a variable cost) (Do not round Intermediate calculations  Round your answers to 2 decimal places ) Purchased WVD drums Manufactured WVD drums Manufactured bike frames Contribution Margin $ 31 25 per unit $ 171 00 per unit $ 164 30 per unit

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TufStuff, 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

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