Question

dinount of costs that Ramiro can save in 2013 by downsizing administrative capacity d ädministrative capacity in increments of 250 customers What 3. What factors, other than cost, should Ramiro consider before it downsizes administrative capacity 12-22 Strategy, balanced scorecard. Stanmore Corporation makes a special-purpose machine, D4H used in the textile industry. Stanmore has designed the D4H machine for 2013 to be distinet from is competitors. It has been generally regarded as a superior machine. Stanmore presents the following data for 2012 and 2013 2012 2013 1. Units of D4H produced and sold 2. Selling price 3. Direct materials (kilograms) 4. Direct material cost per kilogram 5. Manufacturing capacity in units of D4H 6. Total conversion costs 7. Conversion cost per unit of capacity (row 6+ row 5) 8. Selling and customer-service capacity 9. Total selling and customer-service costs 210 $42,000 200 40,000 300,000 $8 250 $2,000,000 $8,000 100 customers $1,000,000 $10,000 310,000 $8.50 250 $2,025,000 $8,100 95 customers $940,500 10. Selling and customer-service capacity cost per customer $9,900 (row 9 row 8) es no defective machines, but it wants to reduce direct materials usage per D4H machine D4H units that in 2013. Conversion costs in each year depend on production capacity defined in terms of

i want to solve exercise number 12-23

Answer 1

1 Operating income of stanmore for the year 2012 & 2013 is as follows :-

Particulars	2012	2013
Units sold	200	210
Unit selling price	40000	42000
Total revenue (A)	8000000	8820000
Cost :-
Direct material cost	(2400000) [300000x8]	(2635000) [310000x8.5]
Manufacturing conversion cost	(2000000)	(2025000)
Selling & customer service cost	(1000000)	(940500)
Total cost (B)	(5400000)	(5600500)
Operating income (A-B)	$2600000	$3219500

2.

A ) Growth component :-

Revenue effect of growth component

Actual units of output sold in 2013	210
Actual units of output sold in 2012	200
Increase in units sold	10
Output price in 2012	$40000
Favourable revenue effect	$400000

Cost effective of growth component

	Direct material	manufacturing conversion cost	selling and customer service cost
Actual units of input or capacity that would have been used to produce year 2013 output assuming same input output relation that existed in 2012	315000	250	100
Less : actual units of input or capacity actually used in 2013	300000	250	100
Difference	15000	0	0
Input price in 2012	$8	$8000	$10000
Unfavourable cost effect	$120000	$0	$0

Statement showing change in operating income due to growth components

Revenue effect of growth component	$400000
Cost effective of growth component	($120000)
Change in revenue due to growth component	$280000

B). Price recovery component :-

Revenue effect of price recovery component

Output price in 2013	$42000
Output price in 2012	$40000
Difference in price	$2000
Output sold in 2013	210
Favourable revenue effect of price recovery component	$420000

Cost effect of price recovery component :-

Particulars	Direct material cost	manufacturing conversion cost	selling & customer service cost	total
Input prices in 2013	$8.5	$8100	$9900
Input prices in 2012	$8	$8000	$10000
Difference	$0.5	$100	($100)
Output in 2013	315000	250	100
Unfavourable cost effect of price recovery component	$157500	$25000	($10000)	$172500

Statement showing change in operating income due to price recovery component :-

Revenue effect of price recovery component	$420000
Cost effect of price recovery component	($172500)
Change in operating income dur to price recovery component	$247500

C). Productivity component

Particulars	Direct material	manufacturing conversion cost	selling and customer service cost	total
Actual input or capacity used to produce 2013 output	310000	250	95
Less : actual unit of inputs or capacity that would have been used to produce 2013 output assuming same input-output relationship existed as on 2012	315000	250	100
Difference in units	(5000)	0	(5)
Input prices in 2013	$8.5	$8100	$9900
Total change in operating income favourable	($42500)	0	($49500)	($92000)

3 .

A). Growth component = we can clearly see that due to growth factor , favourable impact of growth is more by $280000 since, revenue impact of such growth component is $400000 which is greater than cost increase due to growth which is $120000.

Note that growth component measures the change in operating income attributable solely to the changes in quantity of output sold between 2012 & 2013.

Price recovery component = we can see thst due to changes in price level of input and output there is a favourable net impact of such change by an amount equal to $247500 since revenue impact of such change in price level is $420000 whereas cost impact of such change in price level is $172500.

Note that price recovery component measures the change in operating income attributable solely to change in prices of input & output between 2012 & 2013.

Productivity component = we can see that due to productivity component there is an overall favourable impact of $92000 which goes to show that dur to overall improvement in productivity we are able to save almost $92000 compared to previous year input output level.

Note that productivity component measures the change in cost attributable to change in quantity of input used 2013 relative to the quantity of input that would have been used in 2012 to produce 2013 output.