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Homework answers / question archive / Harcourt Manufacturing (M) has the capacity to produce 10,900 fax machines per year
Harcourt Manufacturing (M) has the capacity to produce 10,900 fax machines per year. HM currently produces and sells 7.900 units per year. The fax machines normally sell for $190 each, Modem Products has offered to buy 2.900 fax machines from HM for $105 each. Unit-level costs associated with manufacturing the fox machines are $ each for direct labor and $58 each for direct materials. Product-level and facility level costs are $59.000 and $74.000, respectively. How much would profit increase (decrease) HM accepted this special order? M Chec HOGO 0.00 O 15400 or o $2.000
Harcourt Manufacturing (HM) has the capacity to produce 10.900 fax machines per year. HM currently produces and sells 7900 units per year, HM currently leases its excess capacity for a rental fee of $41,000. The fax machines normally sell for $190 each. Modem Products has offered to buy 2.900 fax machines from HM for $105 each Unit-level costs associated with manufacturing the fax machines are $33 each for direct labor and $58 each for direct materials. Product-level and facility level costs are $59.000 and $74,000, respectively. Based on this information (ignore qualitative characteristics) Multiple Choice HM should reject the offer because accepting it will reduce profitability by $400 HM should accept the offer because accepting it will contribute $10,900 to profit, HM should reject the offer because accepting it will reduce profitability by $10.900 HM should accept the offer because accepting it will contribute $41000 to profit
A condensed Income statement for Gilbert, Inc. follows: (amounts are shown in thousands) Products Sales (total) Total Unit-level Costs Contribution Margin Company-wide Facility-Level Costs Income (Loss) F G H Total $ 288 $ 188.e $ 400 $868.0 (152) (161.6) (216) (529.6) 128 26.4 184 338.4 (26.6) (31.6) (56) (114.2) $ 101.4 S (5.2) S 128 $ 224.2 Gilbert's management is considering whether to eliminate manufacturing product G at the beginning of the next year. The elimination will have no effect on the sales or unit level costs of products F and H. The change in income that would result from eliminating product is Multiple Choice $31600 $26.400 decrease
Ans.
1. Option A
Selling price of new order=105
Cost of special order=59+33=81
Note: Product and facility level cost are fixed and incurred even if order is not accepted, so they are not relevant.
Profit=(105-81)*2900=40600
2. Option A
Profit when excess capacity is leased=41000
Profit if special order accepted=40600(As calculated above)
So profitability will reduce by 4111040600=400
3. Option B
If company discontinued product G, company will loose contribution of 26400 but will continue to incur fixed cost as they are allcoated and are company wide. So, by discontinuing company will loose profit of 26400
