metal drum TuStufT, Inc., sells a wide range of drums, bins, boxes, and other co
ID: 2519550 • Letter: M
Question
metal drum TuStufT, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry One of the company's products is a heavy-duty called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,100 hours of welding tme is avaiable annually on the machine. Because each drum requires 0.8 hours of welding machine time, annual production is imited to 2,625 drums. At present, the welding machine is used to make the WVD drums. The accounting department has provided the following financial data concerning the WWD drums S179.00 Cost per drum $46.90 4 50 Dieect labor ($18 per hour) Selling and 17.80 74.75 104.25 t beleves 3,125 WVD drums could be sold each year if the company had sufficient manufacturing capacity As an aternative to adding another welding machine, management has considered buying additional drums from an outside supplier Harcor Industries, Inc a supplier of quality products, would be able to provide up to 1,800 WVD-type drums per year at a pnice of $120 would resell to its customers at ns normal seling price ater Flores, Tutstufts manager, has suggested that the company could make beter use of the welding machine by manutacturing bike frames, which would require only 0 2 hours of welding machine time per frame and yet sell for far more than the drums Megan believes that Turstutt could sell up to 3,100 bike trames per year to bike manufacturers at a price of $78 each. The accounting department has provided the tollowing data concerning the proposed new product Bike Frames Seling price per trame Cost per t s 78.00 Direct labor (318 per hour) Selling and $19 90 22 50 18.15 890 69 45Explanation / Answer
Tutstuff Inc 1) NO 2 Computation of contribution margin per unit of Purchased WVD drums Manufactured WVD drums Manufactured Bike frames Sales Per Unit 179 179 78 Less : Variable cost Per Unit Cost of buying 120 Direct Material 46.9 19.9 Manufacturing overhead 1.29 3 Selling & distribution overhead 1.09 1.09 2.8 Total Variable cost per unit 121.09 49.28 25.7 Margin per unit 57.91 129.72 52.3 3a) Contribution margin per welding hour Manufactured WVD drums Manufactured Bike frames A Margin per unit 129.72 52.3 B Hours per unit 0.8 0.2 A/B Contribution margin per welding hour 162.15 261.5 Ranking II I 3b) Maximum production 1850 3100 1480 Welding machine hours consumed 1480 620 Maximum Sale quntity 3125 3100 No. of additional WVD drums required to fulfill sales demand 1275 Maximum quntity that can be bought 1800 So answer is Purchased manufactured WVD drums 1275 1850 Bike Frames X 3100 3c) Computation of increase in net operating Income resulting from this plan Purchased WVD drums Manufactured WVD drums Manufactured bike frames Total Sales Quanity 1275 1850 3100 Selling Price 179 179 78 Total Sales Revenue 228225 331150 241800 801175 Less : Variable cost 0 Cost of buying 153000 153000 Direct Material 86765 61690 148455 Direct Labor Manufacturing overhead 2386.5 9300 11686.5 Selling & distribution overhead 1389.75 2016.5 8680 12086.25 Total Variable cost 154389.75 91168 79670 325227.8 Total contribution Margin 73835.25 239982 162130 475947.3 Current contribution margin =2625*129.72 340515 Increase in Net Operating Income 135432.3 Requirement you needed Requirement 2 & 3 assuming Direct labor is variable Computation of contribution margin per unit of Purchased WVD drums Manufactured WVD drums Manufactured Bike frames Sales Per Unit 179 179 78 Less : Variable cost Per Unit Cost of buying 120 Direct Material 46.9 19.9 Direct Labor 4.5 22.5 Manufacturing overhead 1.29 3 Selling & distribution overhead 1.09 1.09 2.8 Total Variable cost per unit 121.09 53.78 48.2 Margin per unit 57.91 125.22 29.8 Requirement you needed Contribution margin per welding hour Manufactured WVD drums Manufactured Bike frames A Margin per unit 125.22 29.8 B Hours per unit 0.8 0.2 A/B Contribution margin per welding hour 156.525 149.000 Ranking I II Maximum production 2625 0 Welding machine hours consumed 2100 0 Maximum Sale quntity 3125 3700 No. of additional WVD drums required to fulfill sales demand 500 Quantity that is bought 500 So answer is Purchased manufactured WVD drums 500 2625 Bike Frames X X Computation of increase in net operating Income resulting from this plan Purchased WVD drums Manufactured WVD drums Manufactured bike frames Total Sales Quanity 500 2625 Selling Price 179 179 0 Total Sales Revenue 89500 469875 0 559375 Less : Variable cost 0 Cost of buying 60000 60000 Direct Material 123112.5 123112.5 Direct Labor 11812.5 11812.5 Manufacturing overhead 3386.25 3386.25 Selling & distribution overhead 545 2861.25 3406.25 Total Variable cost 60545 141172.5 0 201717.5 Total Margin 28955 328702.5 0 357657.5 Net Contribution margin from current plans 328702.5 Increase in Net Operating Income 28955 Requirement you needed
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.