The Hemp Division of West Company produces rope. One-third of the Hemp Division's output is sold to the Hammock Products Division of West; the remainder is sold to outside customers. The Hemp Division's estimated sales and cost data for the fiscal year ending September 30 are as follows:
The Hemp Division has an opportunity to purchase 10,000 feet of identical-quality rope from an outside supplier at a cost of $1.25 per unit on a continuing basis. Assume that the Hemp Division cannot sell any additional product to outside customers.
Required
A. Should West allow its Hemp Division to purchase the rope from the outside supplier? Why or why not?
B. Assume that the Hemp Division is now at full capacity and that sufficient demand exists to sell all production to outsiders at present prices. What is the differential cost (benefit) of producing the rope internally?
C. Assume that the quality of the rope is found to be of a lesser, but still satisfactory, quality. What factors should be considered?
D. Assume that the quality of the rope is found to be of questionable quality but that the price is $1.00 per unit. What factors should be considered in thedecision?
Big Bucks Casino is currently operating at 80 percent capacity.
Worried about the casino's performance, Grey, the general manager, reviewed the company's operating performance. (The revenue and cost data are in millions.) Required
A. What is the current operating profit for the company as a whole?
B. Assuming that all fixed costs are unavoidable, if Grey eliminated the unprofitable segments, what would be the new operating profit for the company as a whole?
C. What options does management have to maximize profits?
The input in the box below will not be graded, but may be reviewed and considered by your instructor. D. What qualitative factors do you think management should consider before making this decision?
The input in the box below will not be graded, but may be reviewed and considered by your instructor. What impact could these qualitative factors have on the decision?
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Robinson's Grocery Store is a small corner grocery store in rural Montana, and shelf space is very limited. Management must decide how to allocate shelf space for salsa. Robinson's has been given an opportunity to sell a very popular brand of salsa produced by Bobby Tutor, a popular rock star. The unique bottle is taller and thinner than the other popular brands on the market, increasing its visibility on the shelf. The sales and cost data for the new salsa and the three other brands presently sold are shown below:
Required
A. Rank the salsas based on expected revenue if each is given 10 feet of shelf space and all bottles are expected to be sold.
B. Based on the information given, which salsa should get the most shelf space? Why?
C. What qualitative factors should be considered in this decision? How would these factors impact the decision?