The document discusses a company considering whether to continue operating a plant during a strike or close it temporarily. It provides details on costs and production levels to determine the break-even point between the two options. It also discusses other factors the company should consider in its decision making.
The document discusses a company considering whether to continue operating a plant during a strike or close it temporarily. It provides details on costs and production levels to determine the break-even point between the two options. It also discusses other factors the company should consider in its decision making.
The document discusses a company considering whether to continue operating a plant during a strike or close it temporarily. It provides details on costs and production levels to determine the break-even point between the two options. It also discusses other factors the company should consider in its decision making.
The document discusses a company considering whether to continue operating a plant during a strike or close it temporarily. It provides details on costs and production levels to determine the break-even point between the two options. It also discusses other factors the company should consider in its decision making.
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Part 1 Show impact of dropping flight 482 on airline's profits
Keep the Drop the
Difference Flight Flight Ticket revenue $14,000 Variable expenses $1,050 Contribution margin $12,950 Less flight expenses: Salaries, flight crew $1,800 Flight promotion $750 Depreciation of aircraft $1,550 Fuel for aircraft $5,800 Liability insurance $4,200 Salaries, flight assistants $1,500 Baggage loading and flight preparation $1,700 Overnight costs for flight crew and assistants at destination $300 Total flight expenses $17,600 Net operating loss -$4,650 Rev Var CM
Sal Crew Promo Depr Fuel Insur. Sal Asst Baggage
Night Total Op Loss Part 1 Recommend to close or keep plant open?
1. Company should not close the plant; continue to operate at reduced level of 11,000 litres produced and sold each month. 2. Closing will result in $140,000 greater loss over 2-month period than if company continues to operate 3. Potential loss of goodwill among customers who need the 11,000 litres of MJ-7 each month 4. Adverse effect on employee morale. 5. Customer needs will not be met (no inventories are on hand); may permanently lose their business to competitor
Part 2 Point of indifference between closing and keeping plant open?
2 Length of Strike $60,000 Fixed MOH Close Savings/month 10% Fixed Selling Close Savings/months $14,000 Start-up Costs 12,000 Dropped Level of Sales Litres (2 months) Part 1 Assume 40,000 carburetors, show unit costs and total cost alternatives for MAKES vs BUY Part 2a Same recommendations if 50,000 carburetors?
Part 2b Same recommendations if 60,000 carburetors?
Part 3 Other factors that the company should consider?
a. Will volume in future years be increasing, or will it remain constant at 40,000 units per year? (If volume increases, then renting new equipment becomes more desirable (based on numbers above.)
b. Can quality control be maintained if the carburetors are purchased from the outside supplier?
c. Does the company have some other profitable use for the space now being used to produce the carburetors? Does production of the carburetors require use of a constrained resource?
d. Will the outside supplier be dependable in meeting shipping schedules?
e. Can the company begin making the carburetors again if the supplier proves to be undependable, or are there alternative suppliers?
f. If the outside supplier’s offer is accepted and the need for carburetors increases in future years, will the supplier have the capacity to provide more than 40,000 carburetors per year?
g. Will the rental cost of the equipment change in the future?
tives for MAKES vs BUY $120,000 Rent New/yr $16 Purchase each $5.50 DM $8.00 DL $1.20 Var OH $7.30 Fix OH $1.50 Supervision $1.80 Depr $4.00 Gen OH $22.00 Total Cost/Unit 25% New eq reduce DL Var OH $60,000 Supervision Cost/yr 60,000 New capacity 40,000 Part 1 Volume
$120,000 Rent New/yr
$16 Purchase each $5.50 DM
$8.00 DL $1.20 Var OH $7.30 Fix OH $1.50 Supervision $1.80 Depr $4.00 Gen OH $22.00 Total Cost/Unit 25% New eq reduce DL Var OH $60,000 Supervision Cost/yr 60,000 New capacity 50,000 Part 2a Volume
$120,000 Rent New/yr
$16 Purchase each
$5.50 DM $8.00 DL $1.20 Var OH $7.30 Fix OH $1.50 Supervision $1.80 Depr $4.00 Gen OH $22.00 Total Cost/Unit 25% New eq reduce DL Var OH $60,000 Supervision Cost/yr 60,000 New capacity 60,000 Part 2b Volume Part 1 Incremental contribution margin (if any) from further processing the wool into sweaters Part 2 her processing the wool into sweaters? Selling price per sweater $30.00 Cost per sweater to manufacture: Raw materials: Wool yarn $16.00 Buttons, thread, lining 2.00 Total raw materials 18.00 Direct labour 5.80 Manufacturing overhead 8.70 32.50 Manufacturing profit (loss) -$2.50
Selling price per spindle of yarn $20.00
Cost to manufacture: Raw materials (raw wool) $7.00 Direct labour 3.60 Manufacturing overhead 5.40 16.00 Manufacturing profit $4.00 Total 10 Per Unit Bangles Incremental revenue 10 Units Incremental costs: $389.95 Sell Less Variable costs: $349.95 Sell spec Direct materials $143 DM Direct labour $86 DL Variable manufacturing overhead $35 MOH Special filigree $264 Unit Total variable cost Fixed costs: $7 V MOH Purchase of special tool $28 F MOH Total incremental cost $35 MOH Incremental operating income $6 Extra $465 Tool
Only the incremental costs and benefits are relevant. In particular, only the variable manufacturing overhead and the cost of the special tool are relevant overhead costs in this situation. The other manufacturing overhead costs are fixed and are not affected by the decision. Part 1 Ski Golf Fishing Ski Selling price/unit Sell 200 Variable cost/unit Var 60 CM per unit Time 2 Time (min) Kgs 7 CM/unit
Part 2 Ski Golf Fishing Selling price/unit Variable cost/unit CM per unit KG CM/kg
Part 3 Golf Fishing 300 255 140 55 5 4 4 8 CONNECT Help Me Video Transcript Solve It Tutorials Class Chapter (click below to Duration (click below to open link) open link)
