Question

Chicago Corporation manufactures filing cabinets in two operations machining and finishing. It provides the following information Click the icon to view the department information) h cabinet sells for $65 and has direct material costs of $30 incurred at the start of the machining operation. Chicago has no other variable costs. Chicago can sell whatever output connection between the requirements X Requirements i Data Table 1. Chicago is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,550 units. The annual cost of these jigs and tools is $45,000. Should Chicago acquire these tools? Show your calculations The production manager of the Machining Department has submitted a proposal to do faster setups that would increase the annual capacity of the Machining Department by 12,000 units and would cost $32,000 per year Should Chicago implement the change? Show your calculations Machining Finishing Annual capacity 130,000 units 100,000 units Annual production 100,000 units 100,000 units 2. Fixed operating costs (excluding direct materials) $1,400,000 $1,200,000 Fixed operating costs per unit produced $14 per unit $12 per unit An outside contractor offers to do the finishing operation for 8,000 units at $24 per unit, double the $12 per unit that it costs Chicago to do the finishing in-house. Should Chicago accept the subcontractor's offer? Show your calculations 3. ($1,400,000/100,000, $1,200,000/100,000) Done Print 4. The Harley Corporation offers to machine 6,800 units at $7 per unit, half the $14 per unit that it costs Chicago to do the machining in house. Should Chicago accept Harley's offer? Show your calculations 5 Chicago produces 1,400 defective units at the machining operation. What is the cost to Chicago of the defective items produced? Explain your answer briefly Chicago produces 1.400 defective units at the finishing operation. What is the posal to do faster setups that would increase the annual capacity of the Machining Department b ext question. 6. cost to Chicago of the defective items produced? Explain your answer brefly

Answer 1

ANS-1 No of unit Increase Due to New tools a 1550 unit 21350x $65 a $100750 Cast of Goodle 15508 $30 * 46500 Grans Profit on Sale $54250 Annual Cost of Jigs $45000 - Profit $9250 (Yes, o acquire of Tools Beneficial , No, Chicago should not change implement, because of Finishing Capacity is only upto looooo then increase of maching Copocity not Beneficial Because of Medional Capacity of maching - 1800000 Lenee in both case of outside finishing Contract in beneficial for the Company. Calculation - four unito y 16000 unit Sale Price P.U= $65 $65 Cost of maturid so - 30 $35 for 424 12 Enceed Cast Que to out so we Prefit Contribution $9 23

if Chicago accept offar 6800 un't - the last of moneti P. 87 P.U then chiloge needs to outsource finishing then Cost Pu a $24 Calculation of Prefite Pu- Sale - $6507 Cast of material $30 Kishing 824 881 Caccept the offee) wg 8 35 machining $7 Ans Proft $ if haft half the offer then - ' Cast pu = $140.0 Calculation of Profit Piu Sale $65 - material 30 3 machining Finishing (24) (14) T3) (Do not accept the affor) Lais

6 if Defections unit in maching Department then it is not torf to finishing Department a fence of Cast 1400 units 400x 30 $42000 Cost of machine Dep $1400 x 14 19600 Total Casta $ 61600 Cost of Defective units is finishing Dept a material Cele 1400x3o = $42000 maching Cast - 14000 14 - $196000 finishing Cost - 1400x12 = $16800 Total Cast $ 78400 @