Question

Chad Davis, C&C Sports' vice president for operations, recently received a sales brochure for a new electric cutting tool. Based on the tool's specifications, Chad believes that C&C Sports could increase the batch size on jersey production to 50 jerseys, up from the current 35 jerseys. While the cutting tool would be used on pants and award jackets as well, other production factors prevent increasing the batch sizes for these products.
The new tool would increase annual operating costs by $14,082. Before deciding whether to purchase the cutting tool, Chad wants to know how the new tool will affect the cost of producing the company's three products.

Required
a. Review the information in Exhibit 7-5. Calculate the total annual cost included in the cutting activity cost pool assuming the cutting tool is purchased.
b. Review the information in Exhibit 7-6 and on page 371. Calculate the cost per cut assuming the cutting tool is purchased.
c. Review the information in Exhibit 7-6. Identify any other activity rates that will be affected by the purchase of the new cutting tool.
d. Explain to Chad why unit costs for all three products will change after the purchase of the new cutting tool.
e. Do you recommend that Chad purchase the new cutting tool? Why or why not?



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  • CreatedFebruary 21, 2014
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