CASE 13–30 Make or Buy; Utilization of a Constrained Resource [LO1, LO3, LO5]
TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:
WVD Drums
Selling price per drum . . . . . . . . . . . . . . $149.00
Cost per drum:
Direct materials . . . . . . . . . . . . . . . . . $52.10
Direct labor ($18 per hour) . . . . . . . . 3.60
Manufacturing overhead . . . . . . . . . . 4.50
Selling and administrative expense. . 29.80 90.00
Margin per drum . . . . . . . . . . . . . . . . . . $ 59.00
AND SO ON
ALL 5 REQUIREMENTS ANSWERED.
Click here for the solution: TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry
Showing posts with label industry. Show all posts
Showing posts with label industry. Show all posts
Monday, April 18, 2016
Saturday, October 17, 2015
Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios
Integrative—Complete ratio analysis
Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios for the most recent year. (Assume a 365-day year.) Analyze its overall financial situation from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and market.
Click here for the solution: Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios
Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios for the most recent year. (Assume a 365-day year.) Analyze its overall financial situation from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and market.
Click here for the solution: Given the following financial statements (below and on page 96), historical ratios, and industry averages, calculate Sterling Company’s financial ratios
Thursday, July 30, 2015
Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry
Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the
aerospace industry. The company uses a job-order costing system with a
predetermined plantwide overhead rate based on direct labor-hours. On
December 16, 2008, the company's controller made a preliminary estimate
of the predetermined overhead rate for the year 2009. The new rate was
based on the estimated total manufacturing overhead cost of $3,402,000
and the estimated 63,000 total direct labor-hours for 2009:
Predetermined overhead rate =3,402,000
63,000 hours
= $54 per direct labor – hour
This new predetermined overhead rate was communicated to top managers in a meeting on December 19. The rate did not cause any comment because it was within a few pennies of the overhead rate that had been used during 2008. One of the subjects discussed at the meeting was a proposal by the production manager to purchase an automated milling machine built by Sunghi Industries. The president of Kelvin Aerospace, Harry Arcany, agreed to meet with the sales representative from Sunghi Industries to discuss the proposal.
On the day following the meeting, Mr. Arcany met with Jasmine Chang, Sunghi Industries' sales representative. The following discussion took place:
Arcany: Wally, our production manager, asked me to meet with you because he is interested in installing an automated milling machine. Frankly, I'm skeptical. You're going to have to show me this isn't just another expensive toy for Wally's people to play with.
Chang: This is a great machine with direct bottom-line benefits. The automated milling machine has three major advantages. First, it is much faster than the manual methods you are using. It can process about twice as many parts per hour as your present milling machines. Second, it is much more flexible. There are some up-front programming costs, but once those have been incurred, almost no setup is required to run a standard operation. You just punch in the code for the standard operation, load the machine's hopper with raw material, and the machine does the rest.
Arcany: What about cost? Having twice the capacity in the milling machine area won't do us much good. That center is idle much of the time anyway.
Chang: I was getting there. The third advantage of the automated milling machine is lower cost. Wally and I looked over your present operations, and we estimated that the automated equipment would eliminate the need for about 6,000 direct labor-hours a year. What is your direct labor cost per hour?
Arcany: The wage rate in the milling area averages about $32 per hour. Fringe benefits raise that figure to about $41 per hour.
Chang: Don't forget your overhead.
Arcany: Next year the overhead rate will be $54 per hour.
Chang: So including fringe benefits and overhead, the cost per direct labor-hour is about $95.
Arcany: That's right.
Chang: Since you can save 6,000 direct labor-hours per year, the cost savings would amount to about $570,000 a year. And our 60-month lease plan would require payments of only $348,000 per year.
Arcany: That sounds like a no-brainer. When can you install the equipment?
Shortly after this meeting, Mr. Arcany informed the company's controller of the decision to lease the new equipment, which would be installed over the Christmas vacation period. The controller realized that this decision would require a recomputation of the predetermined overhead rate for the year 2009 because the decision would affect both the manufacturing overhead and the direct labor-hours for the year. After talking with both the production manager and the sales representative from Sunghi Industries, the controller discovered that in addition to the annual lease cost of $348,000, the new machine would also require a skilled technician/programmer who would have to be hired at a cost of $50,000 per year to maintain and program the equipment. Both of these costs would be included in factory overhead. There would be no other changes in total manufacturing overhead cost, which is almost entirely fixed. The controller assumed that the new machine would result in a reduction of 6,000 direct labor-hours for the year from the levels that had initially been planned.
When the revised predetermined overhead rate for the year 2009 was circulated among the company's top managers, there was considerable dismay.
Requirement 1:Recompute the predetermined rate assuming that the new machine will be installed. (Round your answer to 2 decimal places.
Requirement 2:What effect (if any) would this new rate have on the cost of jobs that do not use the new automated milling machine?
Requirement 3:Why would managers be concerned about the new overhead rate?
Requirement 4:After seeing the new predetermined overhead rate, the production manager admitted that he probably wouldn't be able to eliminate all of the 6,000 direct labor-hours. He had been hoping to accomplish the reduction by not replacing workers who retire or quit, but that had not been possible. As a result, the real labor savings would be only about 2,000 hours—one worker. Compute the net increase or decrease in annual manufacturing overhead cost considering 2,000 hours saving.
Click here for the solution: Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry
Predetermined overhead rate =3,402,000
63,000 hours
= $54 per direct labor – hour
This new predetermined overhead rate was communicated to top managers in a meeting on December 19. The rate did not cause any comment because it was within a few pennies of the overhead rate that had been used during 2008. One of the subjects discussed at the meeting was a proposal by the production manager to purchase an automated milling machine built by Sunghi Industries. The president of Kelvin Aerospace, Harry Arcany, agreed to meet with the sales representative from Sunghi Industries to discuss the proposal.
On the day following the meeting, Mr. Arcany met with Jasmine Chang, Sunghi Industries' sales representative. The following discussion took place:
Arcany: Wally, our production manager, asked me to meet with you because he is interested in installing an automated milling machine. Frankly, I'm skeptical. You're going to have to show me this isn't just another expensive toy for Wally's people to play with.
Chang: This is a great machine with direct bottom-line benefits. The automated milling machine has three major advantages. First, it is much faster than the manual methods you are using. It can process about twice as many parts per hour as your present milling machines. Second, it is much more flexible. There are some up-front programming costs, but once those have been incurred, almost no setup is required to run a standard operation. You just punch in the code for the standard operation, load the machine's hopper with raw material, and the machine does the rest.
Arcany: What about cost? Having twice the capacity in the milling machine area won't do us much good. That center is idle much of the time anyway.
Chang: I was getting there. The third advantage of the automated milling machine is lower cost. Wally and I looked over your present operations, and we estimated that the automated equipment would eliminate the need for about 6,000 direct labor-hours a year. What is your direct labor cost per hour?
Arcany: The wage rate in the milling area averages about $32 per hour. Fringe benefits raise that figure to about $41 per hour.
Chang: Don't forget your overhead.
Arcany: Next year the overhead rate will be $54 per hour.
Chang: So including fringe benefits and overhead, the cost per direct labor-hour is about $95.
Arcany: That's right.
Chang: Since you can save 6,000 direct labor-hours per year, the cost savings would amount to about $570,000 a year. And our 60-month lease plan would require payments of only $348,000 per year.
Arcany: That sounds like a no-brainer. When can you install the equipment?
Shortly after this meeting, Mr. Arcany informed the company's controller of the decision to lease the new equipment, which would be installed over the Christmas vacation period. The controller realized that this decision would require a recomputation of the predetermined overhead rate for the year 2009 because the decision would affect both the manufacturing overhead and the direct labor-hours for the year. After talking with both the production manager and the sales representative from Sunghi Industries, the controller discovered that in addition to the annual lease cost of $348,000, the new machine would also require a skilled technician/programmer who would have to be hired at a cost of $50,000 per year to maintain and program the equipment. Both of these costs would be included in factory overhead. There would be no other changes in total manufacturing overhead cost, which is almost entirely fixed. The controller assumed that the new machine would result in a reduction of 6,000 direct labor-hours for the year from the levels that had initially been planned.
When the revised predetermined overhead rate for the year 2009 was circulated among the company's top managers, there was considerable dismay.
Requirement 1:Recompute the predetermined rate assuming that the new machine will be installed. (Round your answer to 2 decimal places.
Requirement 2:What effect (if any) would this new rate have on the cost of jobs that do not use the new automated milling machine?
Requirement 3:Why would managers be concerned about the new overhead rate?
Requirement 4:After seeing the new predetermined overhead rate, the production manager admitted that he probably wouldn't be able to eliminate all of the 6,000 direct labor-hours. He had been hoping to accomplish the reduction by not replacing workers who retire or quit, but that had not been possible. As a result, the real labor savings would be only about 2,000 hours—one worker. Compute the net increase or decrease in annual manufacturing overhead cost considering 2,000 hours saving.
Click here for the solution: Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry
Thursday, July 16, 2015
Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc
4-5A (Pro forma balance sheet construction) Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc.
Total asset turnover 2 times
Average collection period (assume a 365-day year) 9 days
Fixed asset turnover 5 times
Inventory turnover (based on cost of goods sold) 3 times
Current ratio 2 times
Sales (all on credit) $4.0 million
Cost of goods sold 75% of sales
Debt ratio 50%
Cash _____ Current liabilities _____
Inventory _____ Long-term debt _____
Accounts receivable _____ Common stock plus _____
Net fixed assets _____ Retained earnings _____
Total $ _____ Total $ _____
Click here for the solution: Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc
Total asset turnover 2 times
Average collection period (assume a 365-day year) 9 days
Fixed asset turnover 5 times
Inventory turnover (based on cost of goods sold) 3 times
Current ratio 2 times
Sales (all on credit) $4.0 million
Cost of goods sold 75% of sales
Debt ratio 50%
Cash _____ Current liabilities _____
Inventory _____ Long-term debt _____
Accounts receivable _____ Common stock plus _____
Net fixed assets _____ Retained earnings _____
Total $ _____ Total $ _____
Click here for the solution: Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc
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