Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to various car services that can customize them for their locale and business model. It manufactures two systems, the Star100 and the Star150, which differ in terms of capabilities. The following information is available. Costs per Unit Direct materials Direct labor Variable overhead Fixed overhead Total cost per unit Price Units sold Star100 $ 65 30 15 90 $ 200 $ 290 4,000 Star150 $ 75 40 20 120 $ 255 $ 390 2,000 The average wage rate is $20 per hour. Variable overhead varies with the quantity of direct labor-hours. The plant has a capacity of 20,000 direct labor-hours, but current production uses only 10,000 direct labor-hours. Required: a. A nationwide car-sharing service has offered to buy 2,500 Star100 systems and 2,500 Star150 systems if the price is lowered to $200 and $250, respectively, per unit. a-1. If Unter accepts the offer, how many direct labor-hours will be required to produce the additional systems? a-2. Complete the following table to determine the differential profit increase (or decrease) if Unter accepts this proposal. Prices on regular sales will remain the same. b-1. Suppose that the car-sharing has offered instead to buy 3,500 each of the two models at $200 and $250, respectively. This customer will purchase the 3,500 units of each model only in an all-or-nothing deal. That is, Unter must provide all 3,500 units of each model or none. Unter's management has decided to fill the entire special order for both models. In view of its capacity constraints, Unter will reduce sales to regular customers as needed to fill the special order. Complete the table below to determine the total contribution margin with the special order added. b-2. How much will the profits change if the order is accepted? Assume that the company cannot increase its production capacity to meet the extra demand. C-1. Assume that, in the situation presented in requirement b-1, the plant can work overtime. Direct labor costs for the overtime production increased to $30.00 per hour. Variable overhead costs for overtime production are $5 per hour more than for normal production. Complete the table below to determine the total contribution margin. C-2. How much will the profits change in this situation? Req A1 Req A2 Req B1 Req B2 Req C1 Req C2 A nationwide car-sharing service has offered to buy 2,500 Star100 systems and 2,500 Star150 systems if the price is lowered to $200 and $250, respectively, per unit. A2. Complete the following table to determine the differential profit increase (or decrease) if Unter accepts this proposal. Prices on regular sales will remain the same. Show less Differential revenues: Star 100 Star 150 Differential costs: Star 100 Star 150 Differential profit (loss) Suppose that the car-sharing service has offered instead to buy 3,500 each of the two models at $200 and $250, respectively. This customer will purchase the 3,500 units of each model only in an all-or-nothing deal. That is, Unter must provide all 3,500 units of each model or none. Unter's management has decided to fill the entire special order for both models. In view of its capacity constraints, Unter will reduce sales to regular customers as needed to fill the special order. Complete the table below to determine the total contribution margin with the special order added. Show less A Star100 Star150 Total Special Order: Contribution margin per unit Number of units Total contribution margin Regular production: Contribution margin per unit Number of units Total contribution margin Total contribution margin for both:
