You just starred a summer internship with the successful management consulting firm of Kirk, Spock, and McCoy. Your first day on the job was a busy one, as the following problems were pre sented to you.

Required: Supply the requested comments in each of the following independent situations.

1. Fast Q Company, a specialist in printing, has established 500 convenience copying centers throughout the country. In order to upgrade its services, the company is considering three new models of laser copying machines for use in producing high-quality copies. These high-quality copies would he added to the growing list of products offered in the Fast Q shops. The selling price to the customer for each laser copy would be the same, no matter which machine is installed in the shop. The three models of laser copying machines under consideration are 1024S, a small-volume model; 1024M, a medium-volume model; and 10240, a large-volume model. The annual rental costs and the operating costs vary with the size of each machine. The machine capacities and costs are as follows:

a. Calculate the volume level in copies where Fast Q Company would be indifferent to acquiring either the small-volume model laser copier, 1024S, or the medium-volume model laser copier 1024M.
b. The management of Fast Q Company is able to estimate the number of copies to be sold at cash establishment. Present a decision rule that would enable Fast Q Company to select the most profitable machine without having to make a separate cost calculation for each establishment.
2. Alderon Enterprises is evaluating a special order it has received for a ceramic fixture to be used in aircraft engines. Alderon has recently been operating at less than full capacity, so the firm’s management will accept the order it the price offered accept the costs that will be incurred in producing it. You have been asked for advice on how to determine the cost of two raw materials that would be required to produce the order.
a. The special order will require 800 gallons of endor, a highly perishable material that is purchased as needed. Alderon currently has 1,200 gallons of endor on hand, since the material is used in virtually all of the company’s products. The last lime endor was purchased. Alderon paid $5.00 per gallon. However, the average price paid for the endor in stock was only $4.75. The market price for endor is quite volatile, with the current price at $5.50. lithe special order is accepted. Alderon will have to place a new order next week to replace the 00 gallons of endor used. By then the price is expected to reach $5.75 per gallon.
Using the cost terminology introduced in Chapter 2, comment on each of the cost figures mentioned in the preceding discussion. What is the real cost of endor lithe special order is produced?
b. The special order also would require 1,500 kilograms of tatooine, a material not normally required in any of Alderon’s regular products. The company does happen to have 2.000 kilograms of tatooine on hand, Since it formerly manufactured a ceramic product that used the material. Alderon recently received an offer of $14,000 from Solo Industries for its entire supply of tatooine. However, Solo Industries is not interested in buying any quantity less than Alderon’s entire 2,000-kilogram stock. Alderon’s management is unenthusiastic about Solo’s offer, since Alderon paid $20,000 for the tatooine. Moreover, if the tatooine were purchased at today’s market price, it would cost $11.00 per kilogram. Due to the volatility of the tatooine, Alderon will need to get rid of its entire supply one way or another. If the material is not used in production or sold, Alderon will have to pay $1,000 for each 500 kilograms that is transported away and disposed of in a hazardous waste disposal site.
Using the cost terminology introduced in Chapter 2, comment on each of the cost figures mentioned in the preceding discussion. What is the real cost of tatooine to be used in the special order?
3. A local PBS station has decided to produce a TV series on state-of-the-art manufacturing. The director of the TV series, Justin Tyme, is currently attempting to analyze some of the projected costs for the series. Tyme intends to take a TV production crew on location to shoot various manufacturing scenes as they occur. If the four-week series is shown in the 8:00—9:00 P.M primetime slot, the station will have to cancel m wildlife show that is currently scheduled. Management projects a 10 percent viewing audience far the wildlife show, and each 1 percent is expected to bring in donations of $10,000. In contrast, the manufacturing show is expected to be watched by 15 percent of the viewing audience. However, each 1 percent of the viewership will likely generate only $5,000 in donations. If the wildlife show is canceled, it can be sold to network television for $25,000.
Using the cost terminology introduced in Chapter 2, comment on each of the financial amounts mentioned in the scenario above. What are the relative merits of the two shows regarding the projected revenue to thestation?

Transcribed Image Text:

Copier Model 1024S 1024M 10246 Annual capacity (copies) Costs 100,000 350,000 800,000 Anruual machine rental Direct material and direct labor Variable overhead costs.... $8,000 $11,000 $20,000 .02 03 02 , 12 .02 .07