Question

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 2,080 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is imited to 5,100 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: points Selling price per drum Cost per drum Direet material Direet labor ($22 per hour) Manufacturing overhend Selling and adeinintratave expeone30.60 $165.00 52.10 4.40 6.90 Print 30.6094.00 71.00 Margin per dru References Management believes 6,100 WVD drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier, Harcor industries, Inc., a suppller of quality products, would be able to provide up to 4100 WVD-type drums per year at a price of $150 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TufStuff's production manager, has suggested that the company could make better us of the welding machine by manufacturing bike frames, which would require only Q.5 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 1,680 bike frames per year to bike manufacturers at a price of $259 each. The accounting department has provided the following data concerning the proposed new product Bike Pranes Selling price per frane cost per frane Direct saterial Direet labor (818 per hoar) Manufaoturing overhead Selling and administrative expense51.00 228 00 Margin per frane $259.00 101.80 40.00 s 31.00 The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier Selling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $.75 per WWD drum whether made or purchased and would be $170 per bike frame. All of the company's employees-direct and Indirect-are paid for full 40.00-hour work weeks and the companv has a paliey of lauin expenses are fxed common costs, but it has been estimated that variable selling and administrative expenses amount to $.75 per WVD drum whether made or purchased and would be $1.70 per bike frame. All of the company's employees-direct and indirect-are paid for full 40.00-hour work weeks and the company has a policy of laying points As soon as your analysis was shown to the top management team at TufStuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision. One manager argued that direct labor is always treated cost in textbooks trace the cost to products. "If direct labor is not a variable cost, what is?" Another manager argued just as strenuously that direct labor should be considered a fixed cost at TufStuff. No one had been laid off in over a decade, and for all practical purposes and in practice and has always been considered a variable cost at TufStuff. After all, "direct means you can directly plant is on a monthly salary. Everyone classified as direct labor works a regular 40.00-hour workweek and overtime has not been in over a decade, and for all practical purposes, everyone at the necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or fra the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in labor time that the bike frames would require. Print total direct Required: References 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? 2. Compute the contribution margin per unit. (assume direct labor is a fixed cost) 3. Compute the contribution margin per welding hour (assume direct labor is a fixed cost 4. Assuming direct labor is a fixed cost a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames if a that should be manufactured b. What is the increase (decrease) in net operating income that would resut from this plan over current operations? 5. Compute the contribution margin per unit. fassume direct labor is a variable cost) 6. Compute the contribution margin per welding hour. (assume direct labor is a variable cost 7. Assuming direct labor is a variable cost a. Determine the number of WWD drums (If any) that should be purchased and the number of WVD drums and/or bike frames (fa that should be manufactured. [Assume direct labor is a variable cost) b. What is the increase (decrease) in net operating income that would result from this pian over curent operations? Complete this question by entering your answers in the tabs below Req 1 Reg 2 RR 4 Re 4 Reg sReg Reg 7A Req 78 Determine the number of wvD drums (if any) that should be purchased and the number of WWD drums and/or bike frames (r any) that should be manufactured. (Assume direct labor is a fixed cost) WWD drums Bke frames should be considered a fixed cost at TufStuff. No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary. Everyone classified as direct labor works a regular 4000-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames the total payroll would be exacty the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require. ts Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? 2. Compute the contribution margin per unit (assume direct labor is a fixed cost] 3. Compute the contribution margin per welding hour. (assume direct labor is a fixed cost 4. Assuming direct labor is a fixed cost eBock a. Determine the number of WVD drums (f any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Prit 5. Compute the contribution margin per unit [assume direct labor is a variable cost 6. Compute the contribution margin per welding hour. (assume direct labor is a variable cost) 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. [Assume direct labor is a variable cost b. What is the Increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Req1 Reg 2 Re 3 Reg 4A Req 48Req S Req 7AReq 78 What is the increase (decrease) in net operating income that would result from this plan over current operations? [Assume direct labor is a fixed cost] (Round your intermediate calculations to 2 decimal places. Round final answer to the nearest whole dollar value.) Req 4A should be considered a fixed cost at TufStuff. No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary. Everyone classified as direct labor works a regular 40.00-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require. pcints Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? 2. Compute the contribution margin per unit. [assume direct labor is a fixed cost] 3. Compute the contribution margin per welding hour. (assume direct labor is a fixed cost 4. Assuming direct labor Is a fixed cost a. Determine the number of WVD drums f any) that should be purchased and the number of WVD drums and/or bike frames (if any) eBook that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Print 5. Compute the contribution margin per unit. (assume direct labor is a variable cost) 6. Compute the contribution margin per welding hour (assume direct labor is a variable cost 7. Assuming direct labor is a variable cost a. Determine the number of WVD drums If any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. (Assume direct labor is a variable cost b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below RegRe 2RR 4 48 Rec 7R7 Compute the contribution margin per unit. (assume direct labor is a variable cost] (Do not round intermediate calculations. Round your answers to 2 decimal places) Purchased WVD drums Manufactured WVD drums per unit per unit er unit Manufactured bike frames Req 48 should be considered a fixed cost at TufStuff No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary Everyone classified as direct labor works a regular 40.00-hour workweek and overtime has not beern necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require. points Required: 1. Would you be WVD drums and bike frames? comfortable relying on the financial data provided by the accounting department for making decisions related to the Compute the contribution margin per unit. (assume direct labor is a fxed cost 3 Compute the contribution margin per welding hour (assume direct labor is a fixed cost) 4. Assuming direct labor is a fixed cost eBook a. Determine the number of WVD drums If any) that should be purchased and the number of WVD drums and/or bike frames (If any) that should be manufactured. Print b. What is the increase (decrease) in net operating income that would result from this pian over current operations? 5. Compute the contribution margin per unit. (assume direct labor is a variable cost) 6. Compute the contribution margin per welding hour [assume direct labor is a varlable cost) 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (f any) that should be manufactured. (Assume direct labor is a variable cost] b. What is the increase (decrease) in net operating income that would result from this plan over current operations? References Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3 Reg 4A Req 48 Req 5 Reg & Req 7A R78 Compute the contribution margin per welding hour (assume direct labor is a variable cost) (Round your intermediate calculations and final answers to 2 decimal places.) Manufactured WWD drums Manufactured bike frames per hour per hour should be considered a fixed cost at TufStuff. No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary. Everyone classified as direct labor works a regular 40.00-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require. points Required: t. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? 2. Compute the contribution margin per unit (assume direct labor is a fixed cost 3. Compute the contribution margin per welding hour (assume direct labor is a fixed cost 4. Assuming direct labor is a fixed cost a. Determine the number of wwo drums (If any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured b. What is the increase (decrease) in net operating income Print that would result from this plan over current operations? 5. Compute the contribution margin per unit. (assume direct labor is a variable cost) 6. Compute the contribution margin per welding hour (assume direct labor is e variable cost Assuming direct labor is a variable cost a. Determine the number of WVD drums (f any) that should be purchased and the number of wwD drums and/or bike frames (if any) that should be menufactured. (Assume direct labor is a variable cost) b. What s the Incres ase (decrease) in net operating Income that would resuit from this plan over current operations? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg R R 48RRR Re Determine the number of WWD drums (if any) that should be purchased and the number of wVD drums any) that should be manufactured. [Assume direct labor is a variable cost) f any) that should be purchased and the number of WvD drums and/or bike frames oif WWD drums Bike frames Req Req 7B trace the cost to products. "If direct labor is not a variable cost, what is?" Another manager argued just as strenuously that direct labor should be considered a fixed cost at TufStuf No one had been laid off in over a decade, and for all practical purposes, e plant is on a monthly salary. Everyone classified as direct labor works a regular 40.00-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct co thence the salaryveneat TufstuN labor time that the bike frames would require. points Required: ld you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? eBook 2. Compute the contribution margin per unit (essume direct labor is a fixed cost) 3. Compute the contribution margin per welding hour. (assume direct labor is a fixed cost 4. Assuming direct labor is a fixed cost: a. Determine the number of WVD drums (f any) that should be purchased a number of WVD drums and/or bike frames (If any) that should be manufactured b. What is the increase (decrease) in net operating Income that would result from this plan over current operations? nd the Print References5. Compute the contribution margin per unit. [assume direct labor is a variable cost) 6. Compute the contribution margin per welding hour (assume direct labor is a variable cost) 7. Assuming direct labor is a variable cost a. Determine the number of WVD drums (f any) that should be that should be manufactured. (Assume direct labor is a variable cost b. What is the increase (decrease) in net operating income that would result from this pian over curent operations? purchased and the number of wVo drums and/or bike frames of any) Complete this question by entering your answers in the tabs below. RReg Regg4ReRe Req 1 7B What is the increase (decrease) in net operating income that would result from this plan over current operations? (Assume direct labor is a variable cost) (Do not round intermediate calculations.)

Answer 1

193 2 Asuming direct labor is a Fixed Cost 194 195 196 Selling price Manufactured Purchased WWVD Drums Bike Frames 165 165 259 Variable costs: Direct materials Variable manufacturing overhead Variable selling and adminstrative Total variable cost Contribution margin Per unit 150 0 0.75 150.75 14.25 52.1 1.35 0.75 54.2 110.8 101.8 198 199 200 201 202 203 204 205 3 206 105.4 153.6 Manufactured WVD Drums 110.8 0.4 277 Bike Frames Contribution margin Per unit (a) Welding hours per unit (b) 153.6 0.4 384 208 209 210 Contribution margin per welding hour (a) /(b)

211 212 213 214 215 216 217 218 219 Quantity Unit Contribution Margin Welding Time per Unit Total Welding Time Balance of Welding Time Total Contribution Total hours available Bike frames produced WWD Drums-make WWD Drums-buy Total contribution margin 1680 1550 1550 153.6 110.8 14.25 0.5 0.8 1240 840 1240 258048 183954 22087.5 Less: Contribution margin from present operations 5,100 drums $110.8 CM per drum Decreased contribution margin and net operating income 565080 100991 223 4 Asuming direct labor is a Variable Cost Manufactured Purchased WWVD Drums 225 a Bike Frames 165 165 Selling price Variable costs Direct materials Direct labor Variable manufacturing overhead Variable selling and adminstrative Total variable cost 259 150 0 101.8 35.2 52.1 4.4 1.35 0.75 58.6 106.4 231 232 0.75 150.75 14.25 140.6 118.4 233 Contribution margin Per unit

235 b 236 237 238 Welding hours per unit (b) 239 Contribution margin per welding hour (a) (b) 266 236.8 240 41 c &d 242 243 244 Manufactured WVD Drums 106.4 0.4 Bike Frames 118.4 0.5 Contribution margin Per unit (a) Quantity Unit Contribution Margin Welding Time per Unit Total Welding Time Balance of Welding Time Total Contribution Total hours available WVD Drums-make Bike frames produced 2080 1408 1680 106.4 118.4 14.25 0.4 0.4 672 1408 178752 246WVD Drums-buy 4420 62985 241737 Total contribution margin Less: Contribution margin from present operations 5100drums *$118.4CM per drum Decreased contribution margin and net operating income 542640 -300903 250 251 252 253 254