# BFA261 Week 12 Tutorial Solutions.pdf - Horngren Problem...

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Horngren Problem 16-351.Direct materials costs to produce 390 000 tablets, A\$156 000Direct materials costs per tablet=A\$156 000390 000= A\$0.40 per tabletSelling price per tablet = A\$1.00Unit throughput contribution= Selling priceUnit direct materials costs= A\$1.00A\$0.40 = A\$0.60 per tabletTablet-making is a bottleneck operation. Therefore, producing 19 500 more tablets willgenerate additional operating profit.Additional operating incomeper contractor-made tablet=Unit throughputcontributionAdditional operatingcosts per tablet= A\$0.60A\$0.12= A\$0.48Increase in operating profit, A\$0.4819 500 = A\$9360. Therefore, Wylies Ltd shouldaccept the outside contractor's offer.2.Operating costs for the mixing department are fixed cost. Contracting out themixing activity will not reduce mixing department’s costs but will cost an additional A\$0.07per gram of mixture. Mixing more direct materials will have no effect on throughputcontribution, since tablet making is the bottleneck operation. Therefore, Wylie’s Ltd shouldreject the company's offer.3.The benefit of improved quality is A\$10 000. Wylie’s Ltd is using the same quantityof direct materials as before, so it incurs no extra direct materials costs. The 10 000 extratablets produced generate additional revenue of A\$10 000 (A\$110 000 tablets) a month.The modification costs A\$7 000 per month, which results in a net gain of A\$3000. Wylie’sLtd should implement the new method.4.Cost per gram of mixture =A\$156 000200 000= A\$0.78 per gramCost of 10000 grams of mixture = A\$0.7810 000 = A\$7 800Benefit from better mixing qualityA\$7800 per monthCost of improving the mixing operationA\$9000 per monthSince the costs exceed the benefits by A\$1200 per month, Wylies Ltd should not adoptthe proposed quality improvement plan.5.Compare the answers to requirements 3 and 4. The benefit of improving quality atthe mixing operation is the savings in materials cost. The benefit of improving quality ofthe tablet- making department (the bottleneck operation) is savings in materials costsplus the additional throughput contribution from higher sales equal to the total revenuesthat result from relieving the bottleneck constraint.
Horngren Problem 16-421.Total RevenueA\$3 400 000Costs of QualityCostPercentage ofTotal Revenue3 400 000Prevention CostsTesting of purchased materialsA\$32 000Quality control training for production staffA\$5000Quality design engineeringA\$48 000A\$85 0002.50%Appraisal CostsProduct inspectionA\$102 000A\$102 0003.00%Internal Failure CostsMaterials scrapA\$12 000Rework of failed partsA\$18 000Engineering redesign of failed partsA\$21 000A\$51 0001.50%External Failure CostsCustomer supportA\$37 000Warranty repairsA\$82 000A\$119 0003.50%Total costs of qualityA\$357 00010.50%

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Term
Spring
Professor
Feusse
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