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Workshop One Questions Acct 3104 Semester 2 2009

Workshop One Questions Acct 3104 Semester 2 2009 - Workshop...

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Workshop One Acct 3104 Semester 2 2009 24 August Question One – Product Mix Oversport manufactures and sells sports equipment. It currently produces and sells 5000 pairs of in-line skates each year operating at a maximum machine capacity. Oversports market research has revealed that it could sell 8000 pairs of in-line skates annually. Undersport a nearby supplier has offered to supply up to 6000 pairs of in- line skates at a price of \$75 per pair. The Oversport manager has noticed a current snowboarding craze in the market and believes that Oversport could sell up to 12,000 pairs of snowboard bindings annually. Oversport management accountant summarizes the available data: Manufactured Inline Skates Snowboard Bindings Purchased Inline Skates Selling price \$98 \$60 \$98 Cost per unit Purchase - - \$75 DM \$20 \$20 - Variable machine operating cost (\$16 per hour) \$24 \$8 - Variable and fixed manufacturing overhead (allocation base machine hours) \$18 \$6 - Variable marketing and admin cost \$9 \$8 \$4 - Fixed manufacturing overhead costs of \$30,000 are not affected by the product mix decision - Fixed manufacturing overhead costs are allocated to products based on machine-hour rate, which is calculated by dividing total fixed manufacturing overhead costs of \$30 000 by machine hour capacity - Fixed marketing and administrative costs of \$60,000 are not affected by the product mix decision.

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1. How many machine hours does each pair of manufactured Inline skates need? Each pair of snowboard bindings? If Oversport produces only 12,000 pairs of snowboard bindings, what would be the cost of unused manufacturing capacity? 2. Calculate the variable manufacturing overhead rate per machine hour. 3. Calculate the contribution margin per unit for Inline skates, snowboard bindings and purchase Inline skates. Calculate the contribution margin per machine-hour for the two manufactured products. 4. Calculate the quantity of each product that Oversport should manufacture and sell or purchase and sell to maximize operating income. What is the maximum operating income Oversport can earn?
Question Two – Make versus buy decisions The Phone-Tell Corporation manufactures modems – including the modem circuit board component. It reports the following cost information about the costs of making the component in 2007 and the expected costs for 2008: Current Costs 2007 Expected Costs 2008 Variable manufacturing costs DM per board \$180 \$170 DL per board \$50 \$45 Variable Man. Cost per batch for

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Workshop One Questions Acct 3104 Semester 2 2009 - Workshop...

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