Questions -
Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about 70 percent capacity and is earning a satisfactory return on investment. Management has been approached by Glasgow Industries Ltd. of Scotland with an offer to buy 160,000 units of a pressure valve. Glasgow Industries manufactures a valve that is almost identical to Badger's pressure valve; however, a fire in Glasgow Industries' valve plant has shut down its manufacturing operations. Glasgow needs the 160,000 valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $35.00 each for the valves. Badger's total product cost, based on current attainable standards, for the pressure valve is $36.50, calculated as follows:
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Direct material
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$10
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Direct labor
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11.5
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Manufacturing overhead
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15
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Total product cost
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$36.5
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Manufacturing overhead is applied to production at the rate of $25 per standard direct-labor hour. This overhead rate is made up of the following components.
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Variable manufacturing overhead
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$8
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Fixed manufacturing overhead (traceable)
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12
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Fixed manufacturing overhead (allocated)
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5
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Applied manufacturing overhead rate
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$25
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Additional costs incurred in connection with sales of the pressure valve include sales commissions of 5 percent and freight expense of $1.50 per unit. However, the company does not pay sales commissions on special orders that come directly to management. In determining selling prices, Badger adds a 40 percent markup to total product cost. This provides a $51.10 suggested selling price for the pressure valve. The Marketing Department, however, has set the current selling price at $49.60 in order to maintain market share. Production management believes that it can handle the Glasgow Industries order without disrupting its scheduled production. The order would, however, require additional fixed factory overhead of $20,000 per month in the form of supervision and clerical costs. If management accepts the order, 40,000 pressure valves will be manufactured and shipped to Glasgow Industries each month for the next four months. Glasgow's management has agreed to pay the shipping charges for the valves.
Required:
Question 1. Determine how many direct-labor hours would be required each month to fill the Glasgow Industries order.
Question 2. Prepare an analysis showing the impact of accepting the Glasgow Industries order. (Round "Per unit" answers to 2 decimal
Question 3. Calculate the minimum unit price that Badger Valve and Fitting Company's management could accept for the Glasgow Industries order without reducing net income. (Round your answer to 2 decimal places.)
Question 4. Identify the factors, other than price, that Badger's management should consider before accepting the Glasgow Industries order. (You may select more than one answer. Please highlight or bold the correct answer(s).)
Questions -
MPE, Inc. will soon enter a very competitive marketplace in which it will have limited influence over the prices that are charged. Management and consultants are currently working to fine-tune the company's sole service, which hopefully will generate a 10 percent first-year return (profit) on the firm's $17,500,000 asset investment. Although the normal return in MPE's industry is 12 percent, executives are willing to accept the lower figure because of various start-up inefficiencies. The following information is available for first-year operations:
Hours of service to be provided: 21,000
Anticipated variable cost per service hour: $21.70
Anticipated fixed cost: $1,900,000 per year
Question 5. How much profit must MPE generate in the first year to achieve a(n) 10 percent return?
Question 6. Calculate the revenue per hour that MPE must generate in the first year to achieve a(n) 10 percent return. (Round your answer to 2 decimal places.)
Question 7. Assume that prior to the start of business in year 1, management conducted a planning exercise to determine if MPE could attain a(n) 12 percent return in year 2. If the competitive pressures dictate a maximum selling price of $197 per hour and service hours and the variable cost per service hour are the same as the amounts anticipated in year 1, calculate the following amounts to determine if this return can be achieved.
a. How much profit must MPE generate in the second year to achieve a 12 percent return?
b. Calculate the revenue per hour that MPE must generate in the second year to achieve a 12 percent return.
c. Can the company achieve this return?
How much profit must MPE generate in the second year to achieve a 12 percent return?
Calculate the revenue per hour that MPE must generate in the second year to achieve a 12 percent return. (Round your answer to 2 decimal places.)
Attachment:- Accounting Questions.rar