Question 1:
Hackerott Camera is considering eliminating Model AE1 from its camera line because of losses over the past quarter. The past three months of information for model AE1 is summarized below:
| Sales (1,000 units) |
$250,000 |
| Manufacturing costs: |
|
| Direct materials |
140,000 |
| Direct labor ($15 per hour) |
30,000 |
| Support |
100,000 |
| Operating loss |
($20,000) |
Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE1 that has no resale value.
Should Hackerott Camera eliminate Model AE1 from its product line? Why or why not?
Question 2:
Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:
| Direct materials |
$100 |
| Direct labor |
125 |
| Variable manufacturing support |
60 |
| Fixed manufacturing support |
75 |
| Total manufacturing costs |
360 |
| Markup (60%) |
216 |
| Targeted selling price |
$576 |
Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
Required:
a. For Silver Lake Cabinets, what is the minimum acceptable price of this one-time-only special order?
b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one-time-only special order?
c. How would the analysis differ if there was limited capacity?
Question 3:
Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 20X5, the following estimates were provided for the coming year:
|
Machining |
Assembly |
| Direct labor-hours |
10,000 dlh |
90,000 dlh |
| Machine-hours |
100,000 mh |
5,000 mh |
| Direct labor cost |
$ 80,000 |
$720,000 |
| Manufacturing overhead costs |
$250,000 |
$360,000 |
The accounting records of the company show the following data for Job #846:
|
Machining |
Assembly |
| Direct labor-hours |
50 dlh |
120 dlh |
| Machine-hours |
170 mh |
10 mh |
| Direct material cost |
$2,700 |
$1,600 |
| Direct labor cost |
$ 400 |
$ 900 |
Required:
a. Compute the manufacturing overhead allocation rate for each department.
b. Compute the total cost of Job #846.
c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.
Question 4:
c