Problem 1: Kristen Langdon, the sales manager at a large bicycle manufacturer, has secured an order from a major department store that is due to ship on November 1. She is eager to please the department store in the hop of getting more future business. She asks Bryan Collins, the company's purchasing agent, to procure all necessary parts in time for production to begin on October 10. Bryan orders the parts from reputable suppliers, and most of them arrive by October 7. George Watkins, the production manager, begins production as scheduled on October 10, although the gears that Bryan ordered were delayed because of quality control problems at the manufacturer. Bryan assures George that the gear shipment will arrive before October 16 when those pars are scheduled to be attached to the bicycles. The shipment finally arrives on October 18 after production has been delayed for two days.
Required: Which department should bear the responsibility for the two days' downtime? How can similar problems be avoided in the future?
Problem 2: Fitzpatrick Inc. planned and manufactured 500,000 units of its single product in 2004, its first year of operations. Variable manufacturing costs were $40 per unit of production. Planned fixed manufacturing costs were $1,200,000. Marketing and administrative costs (all fixed) were $500,000 in 2004. Fitzpatrick sold 450,000 units of products in 2004 at $50 per unit.
Required:
1. Determine Fitzpatrick Inc.'s operating income using full costing
2. Determine Fitzpatrick Inc.'s operating income using variable costing
3. Explain the difference between the operating incomes in requirement 1 and 2.