Question 1 (2.5 points) Kinsi Corporation manufactures three different products.

Question

Question 1 (2.5 points)

Kinsi Corporation manufactures three different products. All five of these products must pass through a stamping machine in its fabrication department. This machine is Kinsi's constrained resource. Kinsi would make the most profit if it produces the product that:

Question 1 options:

uses the lowest number of stamping machine hours.

generates the highest contribution margin per unit.

uses the highest number of stamping machine hours.

generates the highest contribution margin per stamping machine hour.

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Question 2 (2.5 points)

The Cowboy's Company needs 20,000 units of a certain part to use in its production cycle. Cowboys is considering the possibility of buying the part from Dolphins Company instead of making it. Sixty percent of the fixed overhead will remain regardless of the decision made. Accounting records indicate the following data:

Cost to Cowboys to make the part:
Direct materials, $4
Direct labor, $16
Variable factory overhead, $18
Fixed factory overhead, $10
Cost to buy the part for Dolphins Company, $36

Which decision should Cowboys make & what is the total cost savings that would result?

Question 2 options:

Make, $80,000

Buy, $80,000

Buy, $120,000

Make, $120,000

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Question 3 (2.5 points)

Company X has gathered the following data for it's three product lines, X, Y, and Z.

Product X

Product Y

Product Z

Contribution Margin

$10,000

$12,000

$22,500

Units Produced

1,000

2,400

1,800

Labor hours required/unit

4

4

5

Machine hours required/unit

4

4

5

If Company X has a limited supply of labor hours, which product(s) should it prefer most?

Question 3 options:

Product X

Products X and Z

Product Z

Product Y

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Question 4 (2.5 points)

Which of the following statements is true

Question 4 options:

The accounting rate of return method ignores the time value of money concept

The payback period ignores the time value of money concept and ignores cash flows received after the payback period

The net present value method considers the time value of concept and also considers cash flows during the entire life of the investment project

When the above methods yield conflicting results, the decision indicated by the net present value method should be considered

All of the above are true

uses the lowest number of stamping machine hours.

generates the highest contribution margin per unit.

uses the highest number of stamping machine hours.

generates the highest contribution margin per stamping machine hour.

Explanation / Answer

1. Generates the highest contribution margin per stamping machine hour. Since machine is a constraint and contribution measures the profitability, if highes contribution is generated per machine hour this would be the ideal situation for maximizing profit.

2. Buy, $120,000.

Cost to buy is $36

Cost to make is $(4 + 16 + 18 + 40%*10) = $42

it is better to buy the product. total cost savings would be ($42 - $36) * 20000 = $120000

3. Product Y. Since higher number of units of product Y are being produced with lesser labour hours, product Y should be most preferred.

4. The accounting rate of return method ignores the time value of money concept.

ARR = Average Return / Average Investment. This does not consider the period in which cash flows occur and hence ignores time value of money concept.

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