eztomheducation.com hm tpx IPort Products makes cases for portable music players

Question

eztomheducation.com hm tpx IPort Products makes cases for portable music players in two processes, cutting and sewing The cutting process has a capacity of 150,000 units per year sewing has a capacity of 180,000 units per year. Cost information follows Inspection and testing costs Scrap costs (all in the cutting dept) $ 90,000 195,000 Demand is very strong. At a sales price of $20 per case, the company can sell whatever output it can produce Port Products can start only 150,000 units into production in the Cutting Department because of capacity constraints. Defective units are detected at the end of production in the Cutting Department At that point, defective units are scrapped Of the 150,000 units started at the cutting operation, 22,500 units are scrapped Unit costs in the Cutting Department for both good and defective units equal $13 per unit, including an allocation of the total fixed manufacturing costs of $900,000 per year to units Direct materials (variable) Direct manufacturing, setup, and materials handting labor (variable) Depreciation, rent, and other overhead (fixed) Total unit cost $13 The fixed cost of $6 per unit is the allocation of the total fixed costs of the Cutting Department to each unit, whether good or defective. (The total fixed costs are the same whether the units produced in the Cutting Department are good or defective ) The good units from the Cutting Department are sent to the Sewing Department Variable manufacturing costs in the Sewing Department are $3 per unit and fixed manufacturing costs are $75,000 per year. There is no scrap in the Sewing Department Therefore, the company's total sales quantity equals the Cutting Department's good output. The company incurs no other variable costs The company's designers have discovered a new type of direct material that would reduce scrap in the Cutting Department to 7,500 units However, using the new material would increase the direct materials costs to $7.25 per unit in the Cutting Department for all 150,000 units. Recall that only 150,000 units can

Explanation / Answer

Solution :-

Particulars Current Material New Material Calculation No. of units Sold 127500 142500 Sell price per unit $20 $20 Sales Revenue $2550000 $2850000 No. of units sold * Sell price per unit Variable cutting manufacturing costs Materials $750000 $1087500 Material Price * units produced other variables $300000 $300000 Other Variable * units produced Fixed cutting manufacturing costs $900000 $900000 Given Variable sewing costs $382500 $427500 Sewing cost per unit * Units Sold Fixed sewing costs $75000 $75000 Given Inspection and testing $90000 $60000* *($90000-$30000) Profit $52500 $0

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