17. Ravenclaw Hardware Systems manufactures and sells various computer products, and has two decentralized divisions: (1)...

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17. Ravenclaw Hardware Systems manufactures and sells various computer products, and has two decentralized divisions: (1) Production and (2) Marketing. The Marketing Division has always purchased a particular mouse from Production at $53 per unit. The Production Division is considering raising the price to $58 per unit. The Production Division can produce up to 4,500 units of this particular product. Costs related to the mouse production at this volume follow. Variable costs per unit: Monthly fixed costs: $50 $45,000 Marketing handles the promotion and distribution of the mouse and uses prices the mouse on a cost-plus basis. Marketing incurs monthly fixed costs of $15,000 and sells 1,500 units per month. Marketing can buy an almost identical mouse from outside suppliers for $60 per unit. If Marketing purchases the mouse from outside suppliers, the facilities that Production uses to manufacture the mouse would remain idle. The Production Division has a lot of spare capacity because of weak global demand for the product. What should be the transfer price be between the Production Division and Marketing Division in order for Ravenclaw to optimize profits? A) $50 B) $53 19. Voldemort manufactures a variety of potions and tonics. Because of a recent shortage of horcrux, a key ingredient needed for three of its products, production manager Thomas Riddle has to decide what amount of each product would be most advantageous to produce. Data for the three products that use horcrux are shown below: Contribution margin per case Contribution margin ratio Allocated fixed cost per case Harry Hermione Ronald $24 $29 $12 50% 70% 60% $4 $4 $4 3 5 2 500 200 2,000 Horcrux required per case (in ounces) Maximum monthly demand (in cases) Voldemort is projected to have only 3,000 ounces of horcrux available next month. Given the shortage in horcrux, how many cases of Ronald should the company plan to produce next month to maximize profits? A) Zero B) 2,000 C) 1,500 D) 1,000 E) 750 C) $58 D) $55 E) $60 18. Death Eater Frozen Delights manufactures five flavors of ice cream. The following information was taken from the company's income statement segmented by flavor (brackets indicate a negative amount). Assume all traceable fixed costs are avoidable, while allocated common fixed costs are not. Contribution margin Traceable fixed costs Allocated common fixed costs Carrow Bellatrix Pettigrew Karkaroff Yaxley $(2,000) $45,000 $35,000 $50,000 $162,000 $14,000 $50,000 $28,000 $40,000 $ 68,000 $10,000 $10,000 $10,000 $10,000 $ 10,000 From a financial standpoint, which flavor or flavors should Death Eater discontinue? A) No flavors should be discontinued. B) Karkaroff and Yaxley only. C) Carrow only. D) Carrow, Bellatrix, and Pettigrew only. E) Carrow and Bellatrix only. 20. Quidditch Inc. is considering whether to buy one component called a snitch from an outside supplier. The company currently produces and uses 13,000 snitches each year. Unit variable manufacturing costs amount to $15, unit variable selling costs amount to $1.50, and fixed overhead at current sales levels amount to $3.60 per snitch. Variable selling costs will be reduced by 80% if Quidditch buys from the outside supplier. Fixed manufacturing overhead will be reduced to 70% of its normal level if the snitches were outsourced. In addition, making each snitch uses 1 minute on the machine that is the company's current constraint. If snitches were outsourced, this machine time would be freed up for use on another product that requires 2 minutes on this machine and that has a contribution margin of $5.20 per unit. When deciding whether to make or buy the snitches, what unit cost of making a snitch should be compared to the price of buying snitches from the outside supplier? A) $18.98 B) $19.88 C) $20.42 D) $14.68 E) $21.32 17. Ravenclaw Hardware Systems manufactures and sells various computer products, and has two decentralized divisions: (1) Production and (2) Marketing. The Marketing Division has always purchased a particular mouse from Production at $53 per unit. The Production Division is considering raising the price to $58 per unit. The Production Division can produce up to 4,500 units of this particular product. Costs related to the mouse production at this volume follow. Variable costs per unit: Monthly fixed costs: $50 $45,000 Marketing handles the promotion and distribution of the mouse and uses prices the mouse on a cost-plus basis. Marketing incurs monthly fixed costs of $15,000 and sells 1,500 units per month. Marketing can buy an almost identical mouse from outside suppliers for $60 per unit. If Marketing purchases the mouse from outside suppliers, the facilities that Production uses to manufacture the mouse would remain idle. The Production Division has a lot of spare capacity because of weak global demand for the product. What should be the transfer price be between the Production Division and Marketing Division in order for Ravenclaw to optimize profits? A) $50 B) $53 19. Voldemort manufactures a variety of potions and tonics. Because of a recent shortage of horcrux, a key ingredient needed for three of its products, production manager Thomas Riddle has to decide what amount of each product would be most advantageous to produce. Data for the three products that use horcrux are shown below: Contribution margin per case Contribution margin ratio Allocated fixed cost per case Harry Hermione Ronald $24 $29 $12 50% 70% 60% $4 $4 $4 3 5 2 500 200 2,000 Horcrux required per case (in ounces) Maximum monthly demand (in cases) Voldemort is projected to have only 3,000 ounces of horcrux available next month. Given the shortage in horcrux, how many cases of Ronald should the company plan to produce next month to maximize profits? A) Zero B) 2,000 C) 1,500 D) 1,000 E) 750 C) $58 D) $55 E) $60 18. Death Eater Frozen Delights manufactures five flavors of ice cream. The following information was taken from the company's income statement segmented by flavor (brackets indicate a negative amount). Assume all traceable fixed costs are avoidable, while allocated common fixed costs are not. Contribution margin Traceable fixed costs Allocated common fixed costs Carrow Bellatrix Pettigrew Karkaroff Yaxley $(2,000) $45,000 $35,000 $50,000 $162,000 $14,000 $50,000 $28,000 $40,000 $ 68,000 $10,000 $10,000 $10,000 $10,000 $ 10,000 From a financial standpoint, which flavor or flavors should Death Eater discontinue? A) No flavors should be discontinued. B) Karkaroff and Yaxley only. C) Carrow only. D) Carrow, Bellatrix, and Pettigrew only. E) Carrow and Bellatrix only. 20. Quidditch Inc. is considering whether to buy one component called a snitch from an outside supplier. The company currently produces and uses 13,000 snitches each year. Unit variable manufacturing costs amount to $15, unit variable selling costs amount to $1.50, and fixed overhead at current sales levels amount to $3.60 per snitch. Variable selling costs will be reduced by 80% if Quidditch buys from the outside supplier. Fixed manufacturing overhead will be reduced to 70% of its normal level if the snitches were outsourced. In addition, making each snitch uses 1 minute on the machine that is the company's current constraint. If snitches were outsourced, this machine time would be freed up for use on another product that requires 2 minutes on this machine and that has a contribution margin of $5.20 per unit. When deciding whether to make or buy the snitches, what unit cost of making a snitch should be compared to the price of buying snitches from the outside supplier? A) $18.98 B) $19.88 C) $20.42 D) $14.68 E) $21.32