Homework
Directions:
Please submit your work in Word. You can submit an Excel file to support
calculations, but please “cut and paste” your solutions into the Word or PDF
file. Be sure to show how you did your calculations. Also, please be sure to
include your name at the top of the first page of your file.
Question #1
Consider the following information,
prepared based on a monthly capacity of 70,000 units:
Category
Cost per Unit
Variable
manufacturing costs
$17
Fixed
manufacturing costs
$4
Variable
selling costs
$5
Fixed
selling costs
$3
Capacity
cannot be added in the month and the firm currently sells the product for $36
per unit.
Consider each of
these scenarios independent of each other.
a)
The company is currently producing 60,000 units per month. A potential customer
has contacted the firm and offered to purchase 8,000 units this month only. The
customer is willing to pay $28 per unit. Since the potential customer
approached the firm, there will be no variable selling costs incurred. Should
the company accept the special order? Why or why not? Be specific.
b)
Assume the same facts as in part a, except that the company is producing 70,000
units per month. Should the company accept the special order? Why or why not? Be specific.
c)
List and describe other factors (not those addressed in parts a and b) that
should be taken into consideration when deciding whether to accept a special
order? Be specific in your responses.
Question #2
Consider
the following information, prepared based on monthly production and sales of
200,000 units:
Category
Cost per Unit
Variable
manufacturing costs
$15.00
Variable
marketing costs
$6.00
The
firm has total fixed costs of $2,000,000 and currently sells the product for $48
per unit.
a)
Assume the company is producing and
selling 200,000 units per month. It is considering an arrangement where an
outside manufacturer would produce and ship the product directly to customers.
Under this arrangement, variable marketing costs would decrease 60% per unit
and $1,100,000 in fixed costs would be avoided. What is the maximum amount per
unit the company would be willing to pay to the outside manufacturer?
b)
List and describe other factors that
should be taken into consideration when deciding whether to accept this offer. Be specific in your responses.
Question #3
A
consulting company performs a “basic” market analysis for a client. It incurs
costs of $25,000 in performing the analysis and plans to sell the report to the
client for $48,000. After reviewing the initial report, the client asks the
firm if it is willing to do a more extensive report. The client offers to pay $75,000
for a more extensive report. If the more extensive report is done, the client
will NOT pay the $48,000. If the consulting firm estimates it will require $22,000
in additional expenses to complete the more extensive report, should it agree
to do the more extensive report? Why or
Why not? Be specific in your response.
Question #4
Assume
an engineering company provides services for three types of clients. Each
service requires a different amount of a specific form of specialized labor
that is in limited supply. If the company is limited to 9,000 hours of this
specialized labor, how many clients of each type should it accept in order to
maximize operating income?
Client Type
A
B
C
Revenue per client
$1,200
$2,200
$4,500
Variable costs per client
$800
$1,400
$2,700
Specialized labor hours required per
client
10
16
40
Maximum clients available
400
300
100
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