Question

I am stuck on a few fields that I've highlighted below. If you could please explain how you got the answers as well. Thank you.

Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to various car services that can customize them for their locale and business model. It manufactures two systems, the Star100 and the Star150, which differ in terms of capabilities. The following information is available. Star100 $ 130 60 30 Costs per unit Direct materials Direct labor Variable overhead Fixed overhead Total cost per unit Price Units sold 180 $ 400 $ 580 4,000 Star150 $ 150 80 40 240 $ 510 $ 780 2,000 The average wage rate is $40 per hour. Variable overhead varies with the quantity of direct labor-hours. The plant has a capacity of E 20,000 direct labor-hours, but current production uses only 10,000 direct labor-hours. Required: a. A nationwide car-sharing service has offered to buy 2,500 Star100 systems and 2,500 Star150 systems if the price is lowered to $400 and $500, respectively, per unit. a-1. If Unter accepts the offer, how many direct labor-hours will be required to produce the additional systems? a-2. Complete the following table to determine the differential profit increase or decrease) if Unter accepts this proposal. Prices on regular sales will remain the same.

Answer 1

Labor Hours per unit = Labor cost/Rate per hour
Star100 = 60/40 = 1.5 hours
Star150 = 80/40 = 2 hours
a-1 Hours required = 2,500*1.5 + 2,500*2 = 8,750 hours
c-1 Additional hours required = 3500*1.5+3500*2+4000*1.5+2000*2 - 20,000 = 2250 hours
	Star 100	Star 150	Total
Special Order
Contribution Margin per unit	180	230
Number of units	3500	3500
Total Contribution Margin	630,000	805,000	1,435,000
Regular Production:
Contribution Margin per unit	360	510
Number of units	4,000	2,000
Total Contribution Margin	1,440,000	1,020,000	2,460,000
Total Contribution Margin for both			3,895,000
Additional direct labor cost			45,000
Additional variable overhead			22,500
Total CM with additional cost			3,827,500
Increase in profits = 3,827,500 - Current Contribution Margin
1,367,500