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Mba 503 Assignment

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Problem5-18A Pricing decisions made with ABC system cost data Morello Sporting Goods Corporation makes two types of racquets, tennis and badminton. The company uses the same facility to make both products even though the processes are quiet different. The company has recently converted its cost accounting system to activity-based costing. The following are the cost data that June Searight, the cost, accountant, prepared for the third quarter of 2011 (during which Morello made 70,000 tennis racquets and 30,000 badminton racquets).

Direct CostTennis Racquet (TR)Badminton Racquet (BR) Direct materials$18 per unit $14 per unit
Direct Labor 32 per unit 26 per unit

CategoryEstimated CostCost DriverAmount of Cost Driver
Unit level$750,000Number of inspection hoursTR: 15,000 hours BR:10,000 hours Batch level 250,000Number of setupsTR:80 setups; BR:45 setups Product level 150,000Number of TV Commercials TR: 4; BR: 1 Facility level 650,000Number of machine hoursTR: 30,000 hours; BR: 35,000 hours

Inspectors are paid according to the number of actual hours worked, which is determined by the number of racquets inspected. Engineers who set up equipment for both products are paid monthly salaries TV commercials fees are paid at the beginning of the quarter. Facility-level cost includes depreciation of all production equipment.

a. Compute the cost per unit for each product.
b. If management wants to price badminton racquets 30 percent above cost, what price should the company set? c. The market price of tennis racquets has declined substantially because of new competitors entering the market. Management asks you to determine the minimum cost of producing tennis racquets in the short term. Provide that information.

Problem 6-30A Comprehensive problem including special order, outsourcing, and segment elimination decisions Huffman corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The conpany’s chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment’s operating activities. The relevant range for the production and sale of calculators is between 30,000 and 60,000 units per year.

Revenue(40,000 units X $8)$320,000
Unit-level variable cost
Materials cost (40,000 X $2) (80,000)
Labor cost (40,000 X $1) (40,000)
Manufacturing overhead ($40,000 X $0.50) (20,000)
Shipping and handling (40,000 X $0.25) (10,000)
Sales commissions (40,000 X $1) (40,000)
Contribution margin 130,000
Fixed expenses
Advertising costs (20,000)
Salary ofproduction supervisor (60,000)
Allocated companywide facility-level expenses (80,000) Net Loss $(30,000)

Required (Consider each of the requirements independently.)
a. A large discount store has approached the owner of Huffman about buying 5,000 calculators. It would replace “The Machines’s lable with its own logo to avoid affecting Huffman’s existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $4.50 per calculator. Based on quantitative factors alone, should Huffman accept the special order? Support your answer with appropriate computations. Specifically, by what amount would the special order increase or decrease profitability? b. Huffman has an opportunity to buy the 40,000 calculators it currently makes from reliable competing manufacturer for $4.90each. The product meets Huffman’s quality standards. Huffman could continue to use its own logo, advertising program, and sales force to distribute the products.

Should Huffman buy the calculators or continue to make them? Support your answer with appropriate computations. Specifically, how much more or less would it cost to buy the calculators than make them? Would your answer change if the volume of sales were increased to 60,000 units? c. Because the calculator division is currently operating at a loss, should it be eliminated from the company’s operations? Support your answer with appropriate computations. Specifically, by what amount would the segment’s elimination increase or decrease profitability?

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