Question

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. Costs per Unit Direct materials Direct labor Variable overhead Fixed overhead Total cost per unit Price Units sold Star 100 $ 64 24 10 89 $ 187 $ 280 4,000 Star150 $ 74 30 15 119 $ 238 $ 380 2,000 The average wage rate is $15 per hour. Variable overhead varies with the quantity of direct labor-hours. The plant has a capacity of 20,000 direct labor-hours, but current production uses only 10,400 direct labor-hours. Required: a. A nationwide car-sharing service has offered to buy 2,400 Star100 systems and 2,400 Star150 systems if the price is lowered to $190 and $240, 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. b-1. Suppose that the car-sharing has offered instead to buy 3,400 each of the two models at $190 and $240, respectively. This customer will purchase the 3,400 units of each model only in an all-or-nothing deal. That is, Unter must provide all 3,400 units of each model or none. Unter's management has decided to fill the entire special order for both models. In view of its capacity constraints, Unter will reduce sales to regular customers as needed to fill the special order. Complete the table below to determine the total 5-2. How much will the profits change if the order is accepted? Assume that the company cannot increase its production capacity to meet the extra demand. 0-1. Assume that in the situation presented in requirement b-1, the plant can work overtime. Direct labor costs for the overtime production increased to $22.50 per hour. Variable overhead costs for overtime production are $4 per hour more than for normal production Complete the table below to determine the total contribution margin. c-2. How much will the profits change in this situation? Answer is not complete. < Prev 2 of 4 !!! Next >

Answer 1

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Unter Components
Present Situation	Star 100	Star 150	Total	Note
Units sold	4,000.00	2,000.00	6,000.00	A
Sell Price	280.00	380.00		B
Sale Value	1,120,000.00	760,000.00	1,880,000.00	C=A*B
Direct materials	64.00	74.00
Direct Labor	24.00	30.00
Variable overhead	10.00	15.00
Total variable cost per unit	98.00	119.00		D
Total variable cost	392,000.00	238,000.00	630,000.00	E=D*A
Contribution per unit	182.00	261.00		F=B-D
Contribution margin	728,000.00	522,000.00	1,250,000.00	G=F*A
Total fixed cost per unit	89.00	119.00		H
Total fixed cost	356,000.00	238,000.00	594,000.00	I=H*A
Total profits	372,000.00	284,000.00	656,000.00	K=G-I
Direct Labor cost per unit	24.00	30.00		L
Wage rate per hour	15.00	15.00		M
Direct Labor hour per unit	1.60	2.00		N=L/M
Units sold	4,000.00	2,000.00	6,000.00	A
Direct Labor used	6,400.00	4,000.00	10,400.00	O=N*A
Contribution per unit	182.00	261.00		F
Contribution per hour	113.75	130.50		P=F/N

Answer a 1	Star 100	Star 150	Total
Offer to buy units	2,400.00	2,400.00
Direct Labor hour per unit	1.60	2.00
Direct Labor hours required	3,840.00	4,800.00	8,640.00
Answer a 2	Star 100	Star 150	Total
Offer to buy units	2,400.00	2,400.00
Sell Price	190.00	240.00
Sale Value	456,000.00	576,000.00	1,032,000.00	Q
Total variable cost per unit	98.00	119.00
Total variable cost	235,200.00	285,600.00
Contribution margin	220,800.00	290,400.00	511,200.00	R
Total Contribution margin	948,800.00	812,400.00	1,761,200.00	T=R+G
Differential profit increase	220,800.00	290,400.00	511,200.00	S=Q-R

Differential profit increase is same as additional contribution from sale to car sharing because Fixed cost is irrelevant cost for decision making.

Answer b 1

If 3400 units of each product to be sold to car sharing service then first we calculate the hours needed:

	Star 100	Star 150	Total
Offer to buy units	3,400.00	3,400.00
Direct Labor hour per unit	1.60	2.00
Direct Labor hours required	5,440.00	6,800.00	12,240.00

Now we will see how much additional hours is required after the company has utilized its 20000 hours.

Total Labor hours	20,000.00
Labor hours already used in existing demand	10,400.00
Labor hours remaining	9,600.00
Direct Labor hours required	12,240.00
Additional Labor hours needed	2,640.00

To full fill above additional 2640 hours of existing sales has to be reduced. As calculated above in note P-

Star 100 has lower contribution per hour of $ 113.75 than Star 150. So sales of STAR 100 should be reduced by adjusting its labor hours.

Additional Labor hours needed	2,640.00	See T
Direct Labor hour per unit of STAR 100	1.60	See N
Number of units of STAR 100 to not be sold	1,650.00	U=T/N
Contribution per unit	182.00	See F
Loss of contribution on units not sold	300,300.00	V=U*F

Revised profits	Star 100	Star 150	Total
Units sold to car sharing	3,400.00	3,400.00	Add a comment Know the answer? Add Answer to: Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to... Your Answer: Post as a guest Your Name: What's your source? Earn Coins Coins can be redeemed for fabulous gifts. Log In Sign Up Post as anonymous Post Your Answer Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free. Similar Homework Help Questions Unter Components manufactures low-cost navigation systems for instalation in ide-sharing cars. It sells these systems to... Unter Components manufactures low-cost navigation systems for instalation in ide-sharing cars. It sells these systems to various car SETVKes that can customize them for their locale and business model it manufactures two systems, the Star 100 and the Star150, which differ in terms of capabilities. 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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. Starse $ 75 Costs per Unit Stariee Direct materials $ 65 Direct labor Variable 15 Overhead Fixed overhead 90 Total cost per $ 200 unit Price Units sold 4,888 $ 255... Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to... 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. 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