Question 1. Quentin Products Ltd. produces a single product. The following is a summary of the cost to produce one unit:
Cost per unit
|
Direct materials
|
$15.00 |
|
Direct labour
|
10.00
|
|
Variable overhead
|
7.50
|
|
Variable selling expenses
|
6.25
|
|
Fixed overhead
|
1.00
|
|
Total cost
|
$39.75 |
The fixed overhead cost of $1 per unit is based on the expected production of 25,000 units. If more than 25,000 units are produced, Quentin will incur an additional $125,000 of fixed overhead costs. Fixed selling and administrative expense is $50,000, regardless of the number of units sold. Quentin expects to sell 18,000 units in the coming year.
Quentin has been invited to bid on a contract to supply a special order of 10,000 units. Quentin expects to incur only $1 per unit in variable selling expenses to fill the special order; all other variable costs will remain unchanged. The 10,000 units will be added to Quentin's regular production schedule. What is the acceptable minimum price that Quentin should bid?
a) $33.50
b) $45.00
c) $46.00
d) $51.25
Use the following information to answer questions 2 and 3:
Jasmine Corp. operates two divisions. The following data relate to its Motor Division:
|
Division assets
|
|
|
Cash
|
$350,000
|
|
Inventories
|
462,000
|
|
Property, plant and equipment, net
|
3,920,000
|
|
Total division assets
|
$ 4,732,000
|
The Motor Division manufactures a heavy-duty motor that can be used for midsize tools. The variable costs of manufacturing are $175 per unit and fixed manufacturing costs per unit are $21 at a level of 70,000 units of production. Of the 70,000 motors produced annually, 14,000 are transferred to the company's Chainsaw Division. The two division managers cannot agree on the price at which these engines should be sold. The Chainsaw Division's manager has offered to pay $198, which is the price at which the motors can be purchased from an outside supplier. The Motor Division's manager feels that the Chainsaw Division should pay $210, which is the current sales price to external customers.
The company's controller has performed an analysis of the Motor Division and has determined that if the division discontinues transfers to the Chainsaw Division, it can eliminate fixed costs of $35,000. The Motor Division can allocate its freed up resources to produce a new product that is estimated to bring in an annual contribution margin of $44,800.
Question 2. Assuming you are the manager of the Motor Division, should the transfer of the motors to the Chainsaw Division at $198 be made?
a) No, the loss over discontinuing transfers is $7,000.
b) No, the loss over discontinuing transfers is $51,800.
c) Yes, the profit over discontinuing transfers is $82,200.
d) Yes, the profit over discontinuing transfers is $242,200.
Question 3. Assume that management decides the motors will be sold to the Chainsaw Division using a transfer price of $198. If the Motor Division sets its prices based on total production costs, at what price should the 56,000 motors be sold to external customers to achieve a 12% return on assets for the Motor Division?
a) $164.51
b) $179.39
c) $203.90
d) $205.64
Question 4. Ethan owns an electronics store. Based on a number of factors including weather, day of the week and the occurrence of national sporting events, Ethan has constructed the following probability distribution of customers that will come into his store during the weekend:
|
Number of customers
|
Probability
|
|
300
|
10%
|
|
400
|
20%
|
|
500
|
35%
|
|
600
|
20%
|
|
700
|
10%
|
|
800
|
5%
|
A higher percentage of customers make a purchase when there are fewer customers in the store. Ethan estimates that 80% of the customers will purchase goods when there are 300 or fewer customers in the store during the weekend. The number of customers that will make a purchase drops by 4% for every 100 customers. The average sale is $90 per customer. Profit margin is 12% on all sales.
How much profit can Ethan expect from weekend sales?
a) $3,900.96
b) $5,562.00
c) $32,508.00
d) $46,350.00
Question 5. Fly-by-Kite Inc. manufactures recreational kites. Its two products are Inflatable and Traction kites. The manufacturing facility is operating near full capacity, and the owner wants to bid on a contract to manufacture Inflatable kites and Traction kites for a local kite retailer. The retailer would like a maximum of 150 kites with a mix of both products; the retailer is not concerned with the mix percentages. If Fly-by-Kite gets the contract it will face a constraint with current capacity.
Fly-by-Kite's owner would like to minimize total costs for the contract and would like to know how to best use the excess capacity. The owner wants to use linear programming based on the following information:
|
Manufacturing costs under normal capacity
|
Inflatable
|
Traction
|
|
Selling price
|
$ 250.00
|
$ 560.00
|
|
Direct materials
|
45.10
|
215.00
|
|
Direct labour
|
33.60
|
42.00
|
|
Overhead (150% of direct labour, all variable)
|
50.40
|
63.00
|
|
Total costs
|
129.10
|
320.00
|
|
Profit
|
$ 120.90
|
$ 240.00
|
|
|
Direct labour
hours
|
Machine
hours
|
|
Current excess capacity
|
200
|
240
|
|
Manufacturing time:
|
|
|
|
Inflatable kite
|
1.60
|
1.25
|
|
Traction kite
|
2.00
|
2.25
|
Using IK as the variable name for Inflatable kites and TK as the variable name for Traction kites, which of the following is the correct linear program for Fly-by-Kite?
a) Minimize $120.90 IK + $240.00 TK Subject to:
IK, TK > 0
IK + TK ≤150
1.6 IK + 2.00 TK ≤ 200
1.25 IK + 2.25 TK ≤ 240
b) Minimize $129.10 IK + $320.00 TK Subject to:
IK, TK > 0
IK + TK ≤ 150
1.6 IK + 2.00 TK ≤ 200
1.25 IK + 2.25 TK ≤ 240
c) Maximize $120.90 IK + $240.00 TK Subject to:
IK, TK > 0
IK + TK ≤ 150
1.6 IK + 2.00 TK ≤ 200
1.25 IK + 2.25 TK ≤ 240
d) Minimize $129.10 IK + $320.00 TK Subject to:
IK, TK > 0
IK + TK ≥ 150
1.6 IK + 2.00 TK ≥200
1.25 IK + 2.25 TK ≥ 240