Question

Please please please help.

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 2.380 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is limited to 5,475 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: $225.00 WVD Drums Selling price per drum Cost per drum: Direct materials Direct labor ($37 per hour) Manufacturing overhead Selling and administrative expense Margin per drum $52.10 7.40 15.90 33.60 109.00 $116.00 Management believes 7,375 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 supplier of quality products, would be able to provide up to 4,475 WVD type drums per year at a price of $195 per drum, which TutStuff would resell to its customers at its normal selling price after appropriate relabeling Megan Flores, TufStuff's production manager, has suggested the company could make better use of the welding machine by manufacturing bike frames, which would require only 0.5 hours of welding machine time per frame and yet sell for far more than the drums, Megan believes that TufStuff could sell up to 1,980 bike frames per year to bike manufacturers at a price of $334 each. The accounting department has provided the following data concerning the proposed new product

Answer 1

o solution assuming direct labour is fixed Particulars Purchased WVD Drums - Manufactured WID Bike Drums frames 225 225 334 195 - (A) Selling Price Variable Costs: Direct Materials Variable Man. Olt Variable selling & Adm. (B) Total variable cost (A-B) Contribution Margin 0.75 195.75 29.25 52:10 1.35 0.75 54.2 170.8 110.80 1.90 3.20 115.90 218.10 a) Purchased WVD Droms 6) Manufactured WVD Drums c) Manufactured Bike Frames Contribution Mangin $29.25 per unit $ 170.8 per unit $ 218.10 per unit I

2 Solution assuming direct labour is fixed - - Manufactured WVD Drums Bike frames - 170.8 218.10 0.4 heu. 0.5 ha contribution margin per unit. (A) (from above solution) Welding hours per unit (B) Contribution margin per welding hour (A + B) $ $ 427 per her. 436.2 per hr.