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Unformatted text preview: Name Recitation Section: Quiz 3 Version 3 (Pink) - SOLUTIONS Management 201 Spring 2011 A. ` EXTRA CORPORATION Extra Corporation can manufacture three types of candy bars at its plant. The plant capacity is limited to 120,000 machine hours per year. Cost data are as follows: Direct Direct Sales Price Materials Labor VOH FOH* Chocos $10.00 $4.00 $2.00 $2.00 $2.00 Vanillas $14.00 $4.50 $3.00 $3.50 $3.50 Rhubarbs $12.00 $5.00 $2.50 $2.50 $2.50 *FOH is allocated on the basis machine hours using the rate of $10/machine hour. All selling and administrative costs are fixed. If Extra can sell as many candy bars of each type as it can produce, which candy bar(s) should it make? Use the space below to compute your answer. Then explain your answer in the space at the bottom of the page; only one or two sentences are required. It is your explanation and supporting computations that will be graded; an answer without clear, readable, logical supporting computations will not receive any points. Space to provide clearly organized, logical computations: Chocos Vanillas Rhubarbs Price $ 10.00 $ 14.00 $ 12.00 VC = (DM+DL+VOH) 8.00 11.00 10.00 Contribution Margin $2.00 $3.00 $2.00 MH per unit .20 MH .35 MH .25 MH CM/MH $10/MH $8.57/MH $8/MH Since Extra has a limited number of machine hours (MH), it wants to make the largest cash profits it can per MH. The above computations show Chocos makes more cash profits per hour than the other two candy types; hence, Extra should use all of its capacity to make only Chocos. Use all capacity to produce Chocos 1. This quiz consists of 2 problems. The point value for each problem is: A. B. EXTRA CORPORATION FULLEST BRUSH COMPANY TOTAL POINTS 12 points 8 points 20 points 2. You have 30 minutes for this exam; no notes are allowed. 3. No notes are allowed. communication. You may not use a calculator that allows storage of information or 4. Show all of your calculations. Correct answers, which are not accompanied by work indicating how the answer was derived, will not receive any credit. Even if the answer can be computed in your head, indicate your thought process on paper. Partial credit will be given only where the logic and handwriting can be easily followed. This means calculations must be labeled and presented in an orderly fashion. The grader will not search for your numbers; nor may one explain ex post how one got one's answer. 5. None of you would cheat; however, for completeness please recall the penalty for cheating is an F in the course. Extra should produce candy bar(s) because: B. FULLEST BRUSH COMPANY The Fullest Brush Company manufactures two styles of hairbrushes--the Plain and the Deluxe. Accounting profits for each are listed below: Plain Price per unit $ 2.50 Direct materials .35 Direct labor .50 Variable overhead* .25 Fixed overhead* 1.25 Gross Margin/Unit $ 0.15 *Allocated on the basis of direct labor hours. Deluxe $ 5.00 1.05 .50 .25 1.25 $1.95 Fullest Brush pays its sales persons a sales commission of 10% of sales revenue. Total fixed selling and administrative costs for the company are $150,000. Since the Deluxe model is very profitable, the company has decided to spend $25,000 advertising the Deluxe. The ad campaign is expected to increase sales of the Deluxe brush by 20,000 brushes. However it is also thought that some people will purchase the Deluxe model in place of the Plain model; the ad campaign is expected to decrease sales of the Plain brush by 5,000 brushes. How much will a company's net cash profits change if it undertakes the advertising campaign? Cash profits will Work: Cash income increase by $23,250 increase / decrease (circle one) by CM for Deluxe: $5.00 ($1.05 + $.50 + $.25 + 10%($5.00)) = $2.70 CM for Plain: $2.50 ($.35 + $.50 + $.25 + 10%($2.50)) = $1.15 Benefits from ads = 20,000 x $2.70 = $54,000 Cost of ads = $25,000 + 5,000 x $1.15 = $30,750 Net benefits of ads = $54,000 - $25,575 = $23,250 ...
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This note was uploaded on 02/23/2012 for the course MGMT 201 taught by Professor Rowe during the Spring '08 term at Purdue University-West Lafayette.
- Spring '08