1. USE your homework 3 SOLUTIONS and calculate the VARIABLE cost/MDLamp and CCLamp for the year AND USE ACTUAL numbers. HINT: identify WHICH MOH costs are FIXED and which are VARIABLE (and I discuss this in the homework 3 video!) and recompute your job cost sheets accordingly. Direct materials and direct labor are VARIABLE COSTS. In other words, use your job cost sheets from homework 3 and adjust your MOH costs for an actual VOH rate and recompute the variable cost/mountain dew lamp and variable cost/coca-cola lamp.

MOH

Beg.Balance 0

Jan.Grease $3,200

Jan.Util $1,000 $500 (Applied MOH for MDLs in Jan.)

Jan.Dep $100 $400 (Applied MOH for CCLs in Jan)

Jan.Rent $300 $4,000 (applied MOH for MDLs for ROY)

ROYUtil $3,800 $1,200 (applied MOH for CCLs for ROY)

ROYDep. $1,100

ROY.Rent $3,300

$12,800 $6,100

1. Using your solution to #1, indicate what the lowest price would be that you would charge customers for a Mountain Dew Lamp and Coca-Cola lamp respectively.

1. CVP- RELEVANT COSTING

Abbott Suit Corporation (ASC) manufactures BOTH nylon AND cotton jogging suits. On 1/1/18, Erin Rogers ESTIMATES the following costs:

Rent on corporate headquarters $20,000

Salaries for CEO, cost accountant, administrative staff $10,000

Depreciation for cost accountants printer $10,000

$40,000

Abbott Suit Corporation use MACHINE HOURS TO ALLOCATE OVERHEAD (i.e. its VPDOH = $10/mh; VPDOH => variable pre-determined overhead rate).

Erin Rogers, UW-M graduate, creates the following standards for the two jogging suits:

	Nylon Jogging Suits	Cotton Jogging Suits
	Std.qty/suit	Std.price/input	Std.qty/suit	Std.price/input
Direct Materials	2 yds/suit	$10/yd	3 yds/suit	$20/yd
Direct Labor	5 dlh/suit	$8/dlh	4 dlh/suit	$5/dlh
VOH	2 mh/suit	$10/mh	4 mh/suit	$10/mh
VARIABLE COST/SUIT	$80/nylon suit	$120/cotton suit

Abbott Suit Believes that it can sell Nylon Jogging Suits for $180/suit and Cotton Jogging suits for $280/suit. Abbott Suit has a goal operating income of $60,000 and believe that it will sell 4 times as many Cotton jogging suits as nylon suits.

1. Compute how many NYLON and COTTON jogging suits must be sold in order to achieve the goal operating income of $60,000. SHOW YOUR WORK. Remember, you will have two equations for two unknowns in this case.

1. Xnylon*($180 - $80) + Xcotton*($280 - $120) - $40,000 = $60,000

1. 2*Xnylon = Xcotton

1. (UNRELATED to A. above). Assume that the machine can only work 10,000 hours or it BREAKS. Also assume that annual demand for nylon suits is 3000 nylon suits and annual demand for cotton suits is 4000 cotton suits. WHAT IS THE OPTIMAL JOGGING SUIT MIX TO PRODUCE and THEREFORE SELL?.

USE THIS AS YOUR STATUS QUO and fill in the #s below.

STATUS QUO
Revenues	$xxx,xxx
Var.Costs	$xxx,xxx
CONTRIBUTION MARGIN	$xxx,xxx
FIXED COSTS	$xxx,xxx
Operating Income	$xxx,xxx

1. Assume that the current machine can only work 10,000 hours or it breaks and also assume (as before) that the annual demand for nylon suits is 3000 nylon suits and annual demand for cotton suits is 4,000 cotton suits. In other words, use your 3B. answer as your status quo. Dean Chari approaches Abbott Suit and says if you RENT this Chari sewing machine from me at $500,000, you can DOUBLE your machine hour capacity from 10,000 machine hours to 20,000 machine hours!. DO YOU TAKE DEAN CHARIS OFFER? SHOW YOUR WORK.

1. (unrelated to 3C.). Assume that the current machine can only work 10,000 hours or it breaks and also assume (as before) that the annual demand for nylon suits is 3000 nylon suits and annual demand for cotton suits is 4,000 cotton suits. In other words, use your 3B. answer as your status quo.

However, the current machine can only work 10,000 hours and has an acquisition value of $1,000,000, accumulated depreciation of $600,000 and has two years left on its 5 year life.

Michael McCarthy approaches Abbott Suit Company and says hey, if you buy this machine, it will reduce the machine hours to 1 mh/nylon suit and 2mh/cotton suit! (the new machine will NOT affect sales price or annual demand of nylon and cotton suits and it will not affect direct materials, direct labor Or the $10/mh variable overhead rate). Moreover, the new machine will have 20,000 machine hours as its annual capacity.The new machine will cost $900,000 and will have a salvage value (in two years) of $250,000.

If Abbott Suit Company takes Michael McCarthys offer, they can sell the old machine for $200,000 today and sell the new machine in two years for $250,000 (i.e. the salvage value of the new machine will be $250,000 in two years).

If Abbott Suit Company does NOT take Michael McCarthys offer, the company will use the old machine for two years (i.e. the status quo per 3B. will be for two years) and will be able to obtain $50,000 for the old machine in two years.

1. (unrelated to 3C or 3D.). Assume that the current machine can only work 10,000 hours or it breaks and also assume (as before) that the annual demand for nylon suits is 3000 nylon suits and annual demand for cotton suits is 4,000 cotton suits. In other words, use your 3B. answer as your status quo.

Tammy Walker, head of marketing, states Hey, we have GOT TO GET IN ON THE JORDAN LOVE mania! Weve got to stop making these generic suits and instead we will make EMBROIDERED nylon suits that has the following insignia/logo.

CEO Vincenzo Lombardi says hey, not so fast! How much is this fancy-schmancy gonna cost us to make? And how much are we gonna be able to sell this jogging suits for?

Tammy Walker answered back. With all due respect, CEO Lombardi, I will give you the estimates on everything. The nylon suits will need better nylon at $12/yd and will require more time for sewing for both direct labor and machine hours. HOWEVER, we can sell the 3000 JORDAN LOVE NYLON SUITS FOR $300 PER SUIT!.

	JORDAN LOVE Nylon Jogging Suits	Cotton Jogging Suits
	Std.qty/suit	Std.price/input	Std.qty/suit	Std.price/input
Direct Materials	2 yds/suit	$10/yd	3 yds/suit	$20/yd
Direct Labor	6 dlh/suit	$8/dlh	4 dlh/suit	$5/dlh
VOH	2.5 mh/suit	$10/mh	4 mh/suit	$10/mh

Should Abbott Suit Corporation adopt the Tammy Walker/Jordan Love jogging suit idea? Yes or no and please remember, the sewing machine can still only be used for 10,000 machine hours/year.