Waterways Continuing Problem This is a continuation of the Waterways Problem from Chapters I through 6) WCP.7 Phil Clark Jr., president of Waterways, was very pleased with how adopting a CVP approach to reporting operating income CVP approach to reporting operating income was helping management to make good business decisions with respect to planning, production, and sales for the coming year. He has a feeling that knowing how fixed and variable costs behave to find savings in the production depart- might also help them to find savings in the production ment. Further, he is concerned that Waterways' production facility is working near full capacity right now, and he does not know the company could generate enough new business to make adding another shift viable. Phil decides to sit down with his brother Ben, vice-president of operations, and Ryan Smith, the plant manager, to see if the "do more with less," as he put it. Jordan Leigh, CFO, had re manager, to see if they could Waterways Continuing Problem 323 presented them with a w sented them with a number of situations that required decisions here that that would impact operations in the plant gether the four of the cofind some Part 1 Waterways packages some of its products into sets for do-it-your self (DIY) installations. The smaller set that sells for $159 has variable costs of $79, while the larger et sells for $249 with var iable costs of $159. Fixed costs are assigned at a rate of $6 per machine hour It takes 32 minutes of machining time to produce and package the smaller set. The larger set is more complicated and requires 60 minutes of production time. The machines operate for two shifts of eight hours each day for 20 days per month. Maintenance and set-ups are handled outside of these times Analysis of the current market trends reveals that monthly demand for the smaller set would not exceed 500 units, while Water ways could sell as many of the larger ones as it can produce. Part 3 Waterways mass-produces a special clip that is used to the gation pipes. Because of a limited supply of the material und is the manufacturing process, very few other companies ture this clip. These units normally well for $3.95 per Waterways sells about 15.000 of the units each year. A company in British Columbia that has been enough material to produce the volume of units demanded by tomers has offered to pay $2.90 each for 15.00 This is just $0.30 how the variable cost of the In additio n predestion would require temporarily adding another shift to the production time, which in turn would increase asem n costs by 500 per unit. However, because the units company, selling costs would be reduced by S0.15 per An Alberta company has also asked for a special and It is will ing to pay $3.20 per unit but only needs 10.000 units Waterways Cannot manufacture this order without adding an extra shift Special packaging required will cost $0.20 per unit Currently. Waterways has enough raw materials to produce 50,000 units. Instructions Given the information above determine the best use of these machines. Instructions a. Determine the consequences of Waterways creeing to provide the 15.000 units to the B.C. company. Would this be a wise spe- cial order to accept? c. Should Waterways accept the special order from the Alberta company? c. What would be the consequences of accepting both special eders? d. What would be the opportunity cost of accepting the special or der from the British Columbia company? The Alberta company Part 2 As we learned in Chapter 6, Waterways markets a simple water con troller and timer that it mass-produces. During 2020, the company sold 350.000 units at an average selling price of $8.00 per unit. The variable expenses were $1.575.000, and the fixed expenses were S800.000 Waterways has determined the full cost to manufacture its tim ers is $6.79 per unit. Recently it was discovered that a competitor was selling this unit for $6.58 per unit. Ryan immediately suggested that Waterways buy the timer from the other supplier, but Jordan was not convinced. He cautioned Ryan that $77,120 worth of fixed costs would not be eliminated by buying the unit. However, he also knew that, if Waterways bought the unit from the competitor, it would free up 120 machine hours that could be used to produce the large DIY installation kits described in Part 1. Instructions a. Assuming Waterways requires 350,000 timers, evaluate whether it should continue to make the timer or if it should purchase it from the outside supplier. b. What is the maximum price per unit Waterways should be will ing to pay to purchase the timer from an outside supplier? c. What non-financial factors might be considered in making this decision? Part 4 Waterways is considering replacing one of its two machines, an antiquated machine that has been showing down production of its special clip because of breakdowns and added maintenance. Ryan Smith, the plant manager, estimates the machine has two years left of use. The undepreciated cost on the old machine is $30.000. He notes that the current machine is capable of producing an verge of 1.200 units per month. The new model of the machine could produce twice as many units during the same time and variable costs would go down by $0.10 per unit. The replacement machine would cost $57,000 and has a two-year life expectancy Costs are not expected to change over the next two years. Instructions Given the original information in Part 3. and assuming an unlimat supply of raw materials, determine if Waterways should replace old machine Waterways Continuing Problem the repairs for the customer (This is a continuation of the Waterways Problem from Chapters 1 through 8.) WCP.9 Part 1 Waterways uses time and material pricing when it bids on drainage pro jects. Budgeted data for 2020 for installation division 1 are as follows. Waterways Corporation Installation Division 1 Budgeted Costs for Drainage Projects for 2020 Material Time Charges Loading Charges Labour wages (5,760 hours) $241,920 $ 60,000 Supervisor's salary 63,360 4.000 Clerical and accountant wages 40,000 Drainage supplies manager 51,840 21,000 Overhead $357,120 $125,000 Total Waterways desires a $23 profit margin per low of Warcra 9 profit on materials. Materials are transferred in front actung division. The total estimated invoice cost of malena 2020 will be $500,000 Instructions a. Calculate the rate per hour of labour b. Calculate the material loading charge. e. Waterways has been asked to quote on a project to upgrade the drainage for a large city multi-use park. The drainage manager estimates that it will take about a month to complete the project and require 450 hours of labour and $75,000 of materials. Cal culate the total estimated bid price for the park project Part 2 Waterways Corporation mass-produces a simple water control and timer set. To produce these units, the company incurred variable expenses of $2,053,200 and fixed expenses of $683,338. During 2020, it sold 696,000 units at an average selling price of $4.22 per unit. This was the combination of selling 346,070 423 Waterways Continuing Problem was on the market for $5.50 each, and transferring 350 OXXO units to the installation divisions at variable cost. Top management had directed the use of this transfer price. Capacity for this unit was 736,000 units. ty. Ryan Smith, the plant manager, was approached by a new customer who offered to pay $5.55 per unit for 00.0 units. Ryan, thinking about his bonus that was based on the department's operating income, readily accepted the order. Now he had to break the news to Lee Williams, the service vice-president in charge of installations. In order to fill the new order. Ryan would have to reduce the installation division's quota by 20,000 units because he was not prepared to give up the margin he would receive from the outside sales. He suggested that Lee could purchase what we need in the outside market. Instructions . Suppose Ryan accepts the order. Determine what the impact would be on 1. the plant 2. the installation division, and 3. the company as a whole. b. What do you think would be the best course of action in this situation? Explain. Waterways Continuing Problem This is a continuation of the Waterways Problem from Chapters I through 6) WCP.7 Phil Clark Jr., president of Waterways, was very pleased with how adopting a CVP approach to reporting operating income CVP approach to reporting operating income was helping management to make good business decisions with respect to planning, production, and sales for the coming year. He has a feeling that knowing how fixed and variable costs behave to find savings in the production depart- might also help them to find savings in the production ment. Further, he is concerned that Waterways' production facility is working near full capacity right now, and he does not know the company could generate enough new business to make adding another shift viable. Phil decides to sit down with his brother Ben, vice-president of operations, and Ryan Smith, the plant manager, to see if the "do more with less," as he put it. Jordan Leigh, CFO, had re manager, to see if they could Waterways Continuing Problem 323 presented them with a w sented them with a number of situations that required decisions here that that would impact operations in the plant gether the four of the cofind some Part 1 Waterways packages some of its products into sets for do-it-your self (DIY) installations. The smaller set that sells for $159 has variable costs of $79, while the larger et sells for $249 with var iable costs of $159. Fixed costs are assigned at a rate of $6 per machine hour It takes 32 minutes of machining time to produce and package the smaller set. The larger set is more complicated and requires 60 minutes of production time. The machines operate for two shifts of eight hours each day for 20 days per month. Maintenance and set-ups are handled outside of these times Analysis of the current market trends reveals that monthly demand for the smaller set would not exceed 500 units, while Water ways could sell as many of the larger ones as it can produce. Part 3 Waterways mass-produces a special clip that is used to the gation pipes. Because of a limited supply of the material und is the manufacturing process, very few other companies ture this clip. These units normally well for $3.95 per Waterways sells about 15.000 of the units each year. A company in British Columbia that has been enough material to produce the volume of units demanded by tomers has offered to pay $2.90 each for 15.00 This is just $0.30 how the variable cost of the In additio n predestion would require temporarily adding another shift to the production time, which in turn would increase asem n costs by 500 per unit. However, because the units company, selling costs would be reduced by S0.15 per An Alberta company has also asked for a special and It is will ing to pay $3.20 per unit but only needs 10.000 units Waterways Cannot manufacture this order without adding an extra shift Special packaging required will cost $0.20 per unit Currently. Waterways has enough raw materials to produce 50,000 units. Instructions Given the information above determine the best use of these machines. Instructions a. Determine the consequences of Waterways creeing to provide the 15.000 units to the B.C. company. Would this be a wise spe- cial order to accept? c. Should Waterways accept the special order from the Alberta company? c. What would be the consequences of accepting both special eders? d. What would be the opportunity cost of accepting the special or der from the British Columbia company? The Alberta company Part 2 As we learned in Chapter 6, Waterways markets a simple water con troller and timer that it mass-produces. During 2020, the company sold 350.000 units at an average selling price of $8.00 per unit. The variable expenses were $1.575.000, and the fixed expenses were S800.000 Waterways has determined the full cost to manufacture its tim ers is $6.79 per unit. Recently it was discovered that a competitor was selling this unit for $6.58 per unit. Ryan immediately suggested that Waterways buy the timer from the other supplier, but Jordan was not convinced. He cautioned Ryan that $77,120 worth of fixed costs would not be eliminated by buying the unit. However, he also knew that, if Waterways bought the unit from the competitor, it would free up 120 machine hours that could be used to produce the large DIY installation kits described in Part 1. Instructions a. Assuming Waterways requires 350,000 timers, evaluate whether it should continue to make the timer or if it should purchase it from the outside supplier. b. What is the maximum price per unit Waterways should be will ing to pay to purchase the timer from an outside supplier? c. What non-financial factors might be considered in making this decision? Part 4 Waterways is considering replacing one of its two machines, an antiquated machine that has been showing down production of its special clip because of breakdowns and added maintenance. Ryan Smith, the plant manager, estimates the machine has two years left of use. The undepreciated cost on the old machine is $30.000. He notes that the current machine is capable of producing an verge of 1.200 units per month. The new model of the machine could produce twice as many units during the same time and variable costs would go down by $0.10 per unit. The replacement machine would cost $57,000 and has a two-year life expectancy Costs are not expected to change over the next two years. Instructions Given the original information in Part 3. and assuming an unlimat supply of raw materials, determine if Waterways should replace old machine Waterways Continuing Problem the repairs for the customer (This is a continuation of the Waterways Problem from Chapters 1 through 8.) WCP.9 Part 1 Waterways uses time and material pricing when it bids on drainage pro jects. Budgeted data for 2020 for installation division 1 are as follows. Waterways Corporation Installation Division 1 Budgeted Costs for Drainage Projects for 2020 Material Time Charges Loading Charges Labour wages (5,760 hours) $241,920 $ 60,000 Supervisor's salary 63,360 4.000 Clerical and accountant wages 40,000 Drainage supplies manager 51,840 21,000 Overhead $357,120 $125,000 Total Waterways desires a $23 profit margin per low of Warcra 9 profit on materials. Materials are transferred in front actung division. The total estimated invoice cost of malena 2020 will be $500,000 Instructions a. Calculate the rate per hour of labour b. Calculate the material loading charge. e. Waterways has been asked to quote on a project to upgrade the drainage for a large city multi-use park. The drainage manager estimates that it will take about a month to complete the project and require 450 hours of labour and $75,000 of materials. Cal culate the total estimated bid price for the park project Part 2 Waterways Corporation mass-produces a simple water control and timer set. To produce these units, the company incurred variable expenses of $2,053,200 and fixed expenses of $683,338. During 2020, it sold 696,000 units at an average selling price of $4.22 per unit. This was the combination of selling 346,070 423 Waterways Continuing Problem was on the market for $5.50 each, and transferring 350 OXXO units to the installation divisions at variable cost. Top management had directed the use of this transfer price. Capacity for this unit was 736,000 units. ty. Ryan Smith, the plant manager, was approached by a new customer who offered to pay $5.55 per unit for 00.0 units. Ryan, thinking about his bonus that was based on the department's operating income, readily accepted the order. Now he had to break the news to Lee Williams, the service vice-president in charge of installations. In order to fill the new order. Ryan would have to reduce the installation division's quota by 20,000 units because he was not prepared to give up the margin he would receive from the outside sales. He suggested that Lee could purchase what we need in the outside market. Instructions . Suppose Ryan accepts the order. Determine what the impact would be on 1. the plant 2. the installation division, and 3. the company as a whole. b. What do you think would be the best course of action in this situation? Explain