TOOLS VIEW AOL assignment COBU 20 ECTED VIEW Be careful-files from the internet
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TOOLS VIEW AOL assignment COBU 20 ECTED VIEW Be careful-files from the internet can contain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Edit You are an eager and ambitious young graduate of the Reginal F. Lewis College of Business at Virginia State University with a new Accounting degree and a great life ahead of you. One of your closest friends is an inventor and an entrepreneur who wants to start a business selling a break-through new drywall screw that she has invented and that she believe works much better than the drywall screws currently on the market. She wants to start the business by opening a factory to produce the screws which can then be sold to either wholesalers or retailers who will then sell them to the general public. After searching all over creation for the right sized building in the perfect location to properly meet the needs of her target customers, she found that the ideal building in which to put up her factory was right here in Petersburg all along To begin, she was able to purchase the building she needed outright for $550,000. Useful life of the building is 45 years and it is depreciated on a straight-line basis Estimated salvage value is $100,000. Property taxes on the building each year are $4,000 There is a new machine that another fellow VSU grad has invented that takes the metal for the screws and molds them into their proper size and shape, and takes th plastic for the anchors and molds them into their proper size and shape; an assembly line is attached to the machine where workers put the screws and anchors into boxes. The finished product is a box of 32 drywall screws and their plastic anchors that work unlike any that have come before them. She purchased this machine outright for The machine has a useful life of 20 years with no residual value and is $100,000. depreciated on a straight-line basis. The machine can produce 32,000 boxes of screws and anchors per year. She is sure that she can sell every unit produc ed. It is determined that to produce the 32 screws in each box will require 112 ounces of metal which is the only material used to make the screws and to produce the 32 anchors in each box will take 48 ounces of plastic which is the only material used to make the anchors. The metal you need is produced by multiple suppliers and you've found one so far that will allow you to buy it at $1.25 per pound. The plastic used isExplanation / Answer
Requirement 1 Determination of each of the following is a variable or a fixed cost Variable or Fixed cost Explanation Metal Variable Cost Directly related to each unit of product and traceble in product Plastic Variable Cost Directly related to each unit of product and traceble in product Assembly Variable Cost Directly related to each unit of product and traceble in product Property Taxes Fixed Cost Period cost and Indirectly related to each unit of product which can not be traceble in product Machine Depreciation Fixed Cost Period cost and Indirectly related to each unit of product which can not be traceble in product COO Salary Fixed Cost Period cost and Indirectly related to each unit of product which can not be traceble in product VP Salary Fixed Cost Period cost and Indirectly related to each unit of product which can not be traceble in product Requirement 2 1 Direct Materials cost per box Requirement for each box in ounces Requirement for each box in pound Rate per pound Total cost Metals 112 7 1.25 8.75 Plastic 48 3 0.25 0.75 Total cost of direct materials of each box 9.5 2 Direct Labor cost per box Each box takex 15 minutes of each assembly for direct labor Workers are paid $15 per hour So, Direct Labor cost per box is =0.25 hour * 15 = 3.75 3 Variable cost per box is Direct Materials cost per box 9.5 Direct Labor cost per box 3.75 Total variable cost per box 13.25 4 Contribution margin per box =Selling price per box - Variable cost per box =17-13.25 = 3.75 5 Total Fixed costs Depreciation on Building =(550000-100000)/45 years 10000 Property Taxes of Building 4000 Depreciation on Machine =(100000-0)/20 years 5000 COO Salary 55000 VP Salary 55000 Total Fixed costs 129000 6 Break even point in boxes =Total fixed cost / Contribution margin per box =129000 / 3.75 = 34400 Requirement Variable costing format Income Statement for maximum possible number of units Total Per box Sales units 32000 544000 17 Variable costs 424000 13.25 Contribution margin 120000 3.75 Fixed costs 129000 Operating Income -9000 Various reason for negetive income are as follows Reason 1 Selling price is too low Reason 2 Variable costs are high Reason 3 Fixed costs are high Reason 4 Contribution margin earned by number of units produced and sold are not enough to cover its fixed cost Requirement Solution 1 If company chooses to produce and sells the 32000 units, it has to either increase its selling price Solution 2 If company decides to go for 32000 units, it has to either reduce its variable cost per unit or total fixed cost Solution 3 Number of units produced should be greater than break-even points in units i.e. 34400 Requirement In the scenerio given in the question, we recommend to increase the selling price of per box, since it may not be initially feasible to reduce the variable cost per unit or total fixed cost. And due to machine constraints, it may not be possible to increase production and sale of number of units. As per Chegg Policy, we are supposed answer maximum of four sub-parts requirement of a question. We appreciate the rating of our answers. Thank You
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