Question

4) Assume that Chandler considers the production of the pool shades and trellises to be a short-term decision. Because there is currently excess capacity in their processes, the company wants to evaluate the new products using a cash outlay approach. Compute the impact on Chandlers profits for each option. 4a) Compute the net change in cash of making and selling the full demand of pool shades. 4b) Compute the net change in cash of making and selling the full demand of trellises 4c) Compute the net change in cash of making and selling the full demand of both pool shades and trellises. a. Full demand Pool Shades Only b. Full de mand Trellises Only c. Full de mand Both Products Resource Spending 1 Approach Product Line Unit sales price Incremental revenue Material Design/Drafting Engineering Fabrication Powder coating Scheduling General factory Total cost Incremental Profit Trellis Selling price per unit Material cost per unit Pool shade 42,500.00 18,750.00 4,300.00 700.00 Desired profit on sales 0.30 Demand Pool shades 120 Demand Trellises 601 Exhibit 3 Resource Design/Drafting Engineering Fabrication Powder coating Scheduling General factory Purchase of Additional Capacity Purchase price of additional capacity Capacity of next step Cost Driver Cost of next step 2,000 design hours $ 50,000.00 2,000 eng. hrs. $ 110,000.00 2,500 parts $ 3,150.00 10,000 square feet) $ 80,000.00 30 job setups $ 70,000.00 2,000 machine hrs $ 36,000.00 Exhibit 1 Resource Design/Drafting Engineering Fabrication D Powder coating Scheduling General factory Existing Capacity Available and Used and Capacity Costs Current capacity and usage (annual) Practical Capacity Cost Driver Purchased Cost of Capacity Used Capacity 20,000 design hours $ 500,000.00 19,500 15,000 engineering hr $ 750,000.00 14,750 4 0,000 parts $ 30,000.00 39,000 400,000 square feet $ 1,800,000.00 210.000 750 job setups $ 756,000.00 640 80,000 machine hrs 5 2,400,000.00 64,000 Exhibit 2 Resource needs for potential new products Cost Driver Pool shade requirements Trellis requirements Resource Design/Drafting Engineering Fabrication Powder coating Scheduling General factory design hours engineering hrs parts square feet job setups machine hrs 401 1600

Answer 1

Answer -

	Resource Spending Approach	Full Demand	Full Demand	Full Demand
		Pool Shades	Trellises	Both
	Product Line	Only	Only	Products
	Unit Sales Price	42500	4300	46800
	Incremental revenue	5100000	258000	5358000
	Material	2250000	42000	2292000
	Design/ Drafting	0	0	0
	Engineering	0	0	0
	Fabrication	5250	0	5250
	Powder Coating	100000	0	100000
	Scheduling	4000	0	4000
	General Factory	0	0	0
	Total Cost	2359250	42000	2401250
	Incremental Profit	2740750	216000	2956750