74. The Gargus Company, which manufactures projection equipment, is ready to introduce a
new line of portable projectors. The following data are available for a proposed model:
Variable manufacturing costs 270
Applied fixed manufacturing overhead 135
Variable selling and administrative costs 90
Applied fixed selling and administrative costs 105
What price will the company charge if the firm uses cost-plus pricing based on absorption cost
and a markup percentage of 110%?
75. The Gargus Company, which manufactures projection equipment, is ready to introduce a
new line of portable projectors. The following data are available for a proposed model:
Variable manufacturing costs 270
Applied fixed manufacturing overhead 135
Variable selling and administrative costs 90
Applied fixed selling and administrative costs 105
What price will the company charge if the firm uses cost-plus pricing based on total cost and a
markup percentage of 30%?
76. Precision Instruments, Inc. is a national firm manufacturing a full line of surgical tools for
veterinarians. Recent technological developments have produced a significantly higher grade of
steel to make surgical instruments and tools. All of Precision’s specialized equipment is designed
and calibrated to produce surgical tools using current surgical steel stock. Precision’s
management wants to begin using the new grade of surgical steel, but recognizes the need to
redesign and calibrate existing production equipment and/or purchase newly designed
production equipment. Redesign of existing equipment can be done in–house, but requires
components from the Swedish manufacturer of the equipment. New equipment will also come
from Sweden, but its cost is almost double that paid seven years ago for the existing equipment.
Required:
Identify the constraints Precision will face as it chooses to upgrade existing equipment or
purchase new equipment. There is considerable market pressure to shift to use of the new steel
stock for production of surgical tools.
77. Jared Monsma, Weekend Golfer’s vice president for marketing, has concluded from his
market analysis that sales have been dwindling for the standard golf cart because of aggressive
pricing by competitors. Weekend Golfers sells these golf carts online for $3,000, whereas the
competition sells a comparable cart online in the $2,900 range. Jared has determined that
dropping the price to $2,850 would regain the firm’s annual market share of 8,000 golf carts. Cost
data based on sales of 8,000 gas golf carts follow:
Budgeted Amount Actual
Amount Actual
Cost
Direct materials $4,200,000 $4,500,000
Direct labor hours 100,000 hrs. 125,000 $1,750,000
Machine setups 75,000 hrs. 75,000 $750,000
Mechanical assembly 375,000 hrs. 400,000 $5,000,000
Input data (from above):
On-line selling price per unit = $3,000
Competitor’s on-line selling price per unit = $2,900
Recommended selling price by Weekend Golfer = $2,850
Normal sales volume per year by Weekend Golfer = 8,000
Required:
1. Calculate the current cost and profit per unit.
2. How much of the current cost per unit is attributable to non-value-added activities?
3. Calculate the new target cost per unit for the sales price of $2,850 if the profit per unit is
maintained.
4. What strategy do you suggest for Weekend Golfer to attain the target cost calculated in
requirement 3?
78. Activities and Market Characteristics Sales Life-Cycle Stage
Decline in sales ____________________________
Advertising ____________________________
Boost in production ____________________________
Stabilized profits ____________________________
Competitor’s entrance into market ____________________________
Market Research ____________________________
Market Saturation ____________________________
Start Production ____________________________
Product Testing ____________________________
Termination of Product ____________________________
Large Increase in sales ____________________________
Required:
Insert the appropriate life-cycle stage in the space provided after each activity.
79. DualShaft Inc. manufactures a wide variety of parts for recreational boating, including
boat engines. The component is purchased by OEM (original equipment manufacturers) such as
Mercury and Honda, for use in the larger and more powerful outboards. The units sell for $790,
and sales volume averages 38,000 units per year. Recently, DualShaft’s major competitor lowered
the price of the equivalent part to $710. The market was very competitive, and DualShaft realized
it had to meet the new price or lose significant market share. The controller assembled the
following data for the most recent year.
Cost and Usage for Production of 38,000 Units
Budgeted Cost Actual Quantity
Actual Cost
Materials $7,980,000 $8,550,000
Direct labor 2,736,000 2,622,000
Indirect labor 3,914,000 3,686,000
Inspection (hours) 3,230 646,000
Materials handling (number of purchases)
800
494,000
Machine setups 4,560 1,824,000
Returns and rework (number of times)
760
114,000
Total $17,936,000
Required:
1. Calculate the target cost for maintaining current market share and profitability.
2. How should the company attempt to reduce cost to meet the new target cost?
80. Cling Co. produces and sells three products (X, Y, and Z). The following data relate to the
three products. Labor is a fixed cost.
X Y Z
Demand in units 190 200 210
Selling price per unit $160 $190 $180
Raw materials costs per unit $80 $100 $110
Labor time in minutes per unit 20 28 12
Required:
1. Which is the most profitable product if there is no labor constraint?
2. Which is the most profitable product if there is a labor constraint?
81. Pat Baldwin owns and operates Outstanding Quality Rentals (OQR). OQR offers kayak
rentals and shuttle service on the Petaholee River. Customers can rent kayaks at one station and
enter the river there. They can then exit at one of two designated locations to catch a shuttle to
return them to their vehicles. Following are the costs involved in providing this service each year.
Fixed costs Variable costs
Kayak maintenance $3,600 $4.20
Licenses and permits 4,800 0.00
Vehicle leases 8,400 0.00
Station lease 10,800 0.00
Advertising 9,400 0.70
Operating costs 32,400 0.80
OQR began business three years ago with a $36,000 expenditure for a fleet of 50 kayaks. These
are expected to last seven more years, at which time a new fleet will be purchased. Pat is
satisfied with the steady average rentals per year of 9,900.
Required:
What price should Pat charge per rental for the business to make a thirty percent life cycle
profit?
82. Bell Company produces and sells three products (A, B, C). The following data relate to
the three products. Management considers labor to be a fixed cost.
A B C
Demand in units 120 110 100
Selling price per unit $100 $120 $105
Raw material cost/unit $50 $60 $60
Labor time in minutes/unit 12 17 7
Required:
1. Calculate the contribution per labor minute for each product.
2. Determine the best product mix. Assume there are five employees, and given time for breaks,
training, and regular meetings, there are a total of 2,200 minutes available per day.
83. The management accountant at the Huang Manufacturing Company has collected the
following data in preparation for a life cycle analysis on one of its products, a leaf blower:
Item
This
Year
Change over
Last year Average Annual
Change over the
Last four years
Annual sales $2,000,000 +1.5% +19.6%
Unit sales price $400 +2.0% +6.9%
Unit profit $180 -0.8% +2.5%
Total profit $400,000 +1.0% +25.0%
Required:
Determine what stage of the sales life cycle the leaf blower is in and explain your reasoning.
84. Bakker Industries sells three products (611, 613, and 615) that it manufactures in four
departments. Both labor and machine time are applied to products in each of the four
departments. The machine-processing and labor skills required in each department prohibit
switching either machines or labor from one department to another. However, Bakker has a good
supply of both full-time and part-time labor and does not expect hiring or retention of employees
to be a problem. Because of the availability of part-time labor, Bakker considers labor a variable
cost and includes it in the calculation of throughput margin.
Bakker’s management is planning its production schedule for the next several months. Some
machines will be out of service for extensive overhauling. Available machine times by department
for each of the next six months are as follows:
DEPARTMENT
1 2 3 4
Normal machine capacity in machine hours 3,500 3,500 3,000 3,500
Capacity of machines being repaired, in machine hours 500 400 300 200
Available capacity in machine-hours 3,000 3,100 2,700 3,300
Labor and machine specifications per unit of product are as follows:
DEPARTMENT;
MACHINE HOURS
Product Labor and Machine Time 1 2 3 4
611 Direct labor–hours 2 3 3 1
Machine-hours 2 1 2 2
613 Direct labor–hours 1 2 0 2
Machine-hours 1 1 0 2
615 Direct labor–hours 2 2 1 1
Machine-hours 2 2 1 1
The Sales Department’s forecast of product demand over the next six months is as follows:
Product Monthly Sales
(units)
611 500
613 400
615 1000
Bakker’s inventory levels will not increase or decrease during the next six months. The unit price
and cost data valid for the coming six months are as follows:
PRODUCT
611 613 615
Price $196 $123 $167
Direct materials $7 $13 $17
Direct labor
Department 1 $12 $6 $12
Department 2 $21 $14 $14
Department 3 $24 $0 $16
Department 4 $9 $18 $9
Variable overhead $27 $20 $25
Fixed overhead $15 $10 $32
Variable selling $3 $2 $4
Required:
1. Determine whether Bakker can meet the monthly sales demand for the three products. What
department, if any, is a constraint?
2. What monthly production schedule would be best for Bakker Industries?
