Shortly after reading the article Greg received a call from one of his Japanese
ID: 2475851 • Letter: S
Question
Shortly after reading the article Greg received a call from one of his Japanese suppliers, a provider of the wheel assemblies for the skateboards (both the standard model and longboard). Greg has been purchasing the wheel aseemblies from the supplier who has been providing the assemblies at a very low price. The supplier informs Greg that there is significant uncertainty in the tariffs that are required because the outcome of the Trans Pacific Partnership (TPP) trade deal is in question. The Japanese supplier informs Greg that the increase in tariff and duties on shipping will run $2.00 per wheel assembly for both the standard board and longboard. Remember each board requires two wheel assemblies. Greg thinks about how to proceed. He opens his contact list on his computer and begins to call other known suppliers. After serveral hours on the phone negotiating price and delivery terms with alternative suppliers, Greg compiles cost data for a U.S. Supplier. The U.S. supplier has higher costs in direct materials of $.75 per wheel assembly for the standard model and $1.00 per wheel assembly for the longboard. In addition the wheel aseembles provided by the U.S. supplier will require an extra processing step before installation which will ad $.50 of direct labor cost per board for both models. A new machine will also need to be purchased to perform this extra operation, os Greg will incur an additional $200 in costs per month in fixed depreciation expense. Greg would like you to evaluate the two alternatives on a monthly basis to determine how to move forward. He has assembled the following monthly data about current operations.
total common fixed costs are 6,700.
1. using the data above prepare two segment margin income statements in the space provided in appendix E of packet 2. the first income statement should calculate the monthly profitability if greg continues to purchase the wheel assemblies from the japanese supplier under the nw tarrif scheme and should reflect the increase in costs described above. the second income statement should calculate the profitability if greg purchases the wheel assemblies from the U.S. supplier and should reflect the increases in cost described for that scenario. (income statements have the amount and unit columns for each type of board along with a total column with amount and percentage)
2. calculate the breakeven sales dollars under both alternatives.
3. which supplier would you choose? in explaining your answer list factors other than profitability that should influence your decision.
standard board longboard unit sales 310 85 selling price per unit 80.00 130.00 direct materials cost per unit 21.00 33.00 direct labor cost per unit 27.00 44.00 other variables(utilities,supplies, and shipping) per unit 9.50 11.50Explanation / Answer
1) Income statement Japanese US Standard board long board Total Standard board long board Unit sales 310.00 85.00 310 85 Wheel assembly 2.00 2.00 2 2 Total wheel assembly 620.00 170.00 620 170 Selling price per unit 80.00 130.00 80 130 Direct material 21.00 30.00 direct labor 27.00 44.00 other variables 9.50 11.50 Tariffs and duties ( 2 *2) 4.00 4.00 Total variable cost 61.50 89.50 Contribution per unit 18.50 40.50 Total contribution 5735.00 3442.50 9177.50 Less : Fixed cost 6700.00 Net Income 2477.50 US Standard board long board Total Unit sales 310 85 Wheel assembly 2 2 Total wheel assembly 620 170 Selling price per unit 80 130 Direct material 21.75 31.00 direct labor 27.50 44.50 other variables 9.50 11.50 Total variable cost 58.75 87.00 Contribution per unit 21.25 43.00 Total contribution 6587.5 3655 10242.5 Less : Fixed cost 6900.00 Net Income 3342.50 2) Break even sales ( units) = Fixed Cost / Weighted Contribution per unit Break even sales ( dollars) = Break even sales ( units ) * selling price per unit Japanese Standard board long board Total Unit sales 310 85 395 Sales mix percentage 78.48% 21.52% Contribution per unit 18.50 40.50 Weighted average contribution per unit = CM per unit of skateboard * sales mix percentage + CM per unit of long board * sales mix percentage = 18.50 *78.48 + 40.5*21.52 = 14.52 + 8.72 = 23.24 Break even sales ( units) = 6700 / 23.24 288.2960413 = 288 226.0253165 62.04130809 Break even units of skateboard = 288 * 78.48% = 226 Breakeven units of longboard = 288 * 21.52% = 62 Break even units ( dollars) Skateboard ( 226 * 80) 18080 Longboard ( 62 * 130) 8060 Total 26140 US Standard board long board Total Unit sales 310 85 395 Sales mix percentage 78.48% 21.52% Contribution per unit 21.25 43.00 Weighted average contribution per unit = CM per unit of skateboard * sales mix percentage + CM per unit of long board * sales mix percentage = 21.25 *78.48 + 43*21.52 = 16.68 + 9.25 = 25.93 Break even sales ( units) = 6900 / 25.93 266.1010413 = 266 208.7594937 57.26494408 Break even units of skateboard = 266 * 78.48% = 209 Breakeven units of longboard = 266 * 21.52% = 57 Break even units ( dollars) Skateboard ( 209 * 80) 16720 Longboard ( 57 * 130) 7410 Total 24130 3) The option provided by US supplier would be chosen this is because 1) The break eben point both in nits and dollars is lower than the Japanese option 2) Buying from local vendor is laways less complicated than importing product
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.