Abbott Suit Corporation is a manufacturer of 3 types of jogging suits: nylon and cotton Abbott Suit (ASC) corporation manufactures BOTH nylon AND cotton jogging suits.

On 1/1/14, Erin Rogers ESTIMATES the following fixed PRODUCT costs:

Janitorial Salaries for manufacturing facility $40,000

Rent on Manufacturing Facility $200,000

ABBOTT SUIT CORPORATION USES MACHINE HOURS TO ALLOCATE UTILITIES

ABBOTT SUIT CORPORATION USES MACHINE HOURS TO ALLOCATE JANITORIAL SALARIES AND DEPRECIATION FOR MACHINERY and direct labor hours to allocate rent.

Erin Rogers, UW-M graduate, creates the following standards for the two jogging suits:

	Nylon Jogging Suits		Cotton Jogging Suits
	Std.qty/suit	Std.price/input	Std.qty/suit	Std.price/input
Direct Materials	2 yds/suit	$10/yd	3 yds/suit	$20/yd
Direct Labor	5 dlh/suit	$10/dlh	4 dlh/suit	$5/dlh
VOH – utilities	5 mh/suit	$10/mh	2 mh/suit	$10/mh
FOH – janitor	5mh/suit	$2/mh	2mh/suit	$2/mh
FOH-rent	5dlh/suit	$4/dlh	4 dlh/suit	$4/dlh

FOR PURPOSES OF THIS PROBLEM, ASSUME THAT THE STANDARDS ABOVE are 100% accurate (assume all were ZERO variances). Also, assume that:

Nylon jogging suits sell for $300/nylon jogging suit;

Cotton jogging suits sell for $200/cotton jogging suit;

Annual demand (i.e. how many customers would purchase if possible) for cotton jogging suits is 2,000 suits and the annual demand for nylon jogging suits is also 2,000 suits.

The sewing machine which is needed for BOTH nylon and cotton jogging suits has a CAPACITY of 5,000 machine hours (or it will break).

Currently, there is a company that produces a new and improved sewing machine. Information for the new machine is as follows:

The cost of the new machine is $1,000,000 and it has a useful life of 4 years.

The salvage value of the new machine at the end of the 4 years is $100,000.

The new machine HAS NO IMPACT ON THE ANNUAL DEMAND FOR JOGGING SUITS and no impact on the price that customers are willing to pay for them.

However, the new machine has an annual capacity of 5,000 machine hours BUT reduces the number of machine hours per suit to 4 mh/nylon jogging suit and 1mh/cotton jogging suit.

The new machine will have no impact on the $10/mh or $2/mh PDOHRates.

The ‘old’ machine also has a useful REMAINING life of 4 years;

The old machine’s acquisition value is $2,000,000 and currently has a net book value of $800,000.

The salvage value of the old machine is $400,000 if sold today, 0 if sold 4 years from now.

The company will still have to maintain its manufacturing facility and the janitor that upkeeps it.

Indicate if the company should buy the new machine or keep the old machine. 

 2 :

On 1/1/11, Erin Rogers ESTIMATES the following fixed PRODUCT costs:

Janitorial Salaries for manufacturing facility $40,000

Rent on Manufacturing Facility $200,000

Erin Rogers, UW-M graduate, creates the following standards for the sandwiches:

	Ham		Peanut butter&Jelly		Tuna Sandwiches
	Std.qty/sand	Std.pric/lb	Std.qty/sand	Std.pric/lb	Std.qty/sand	Std.pric/lb
Direct Materials	.2lbs/sand	$4/lb	.2lbs/sand	$3/lb	.2lbs/sand	$5/lb
Direct materials-bread	2slices/sand	$.10/slice	2slices/sand	$.10/slice	2slices/sand	$.10/slice
Direct Labor	.1 dlh/sand	$10/dlh	.2dlh/sand	$20/dlh	.2dlh/sand	$15/dlh
VOH – utilities	.1mh/sand	$5/mh	.4mh/sand	$5/mh	.2mh/sand	$5/mh
FOH – janitor	.1mh/sand	$8/mh	.4mh/sand	$8/mh	.2mh/sand	$8/mh
FOH-rent	.1 dlh/sand	$10/dlh	.2dlh/sand	$10/dlh	.2dlh/sand	$10/dlh
Price/sandwich	$10/sand		$15/sand		$6/sand.
Annual Demand	4000		5000		6000

Compute the GROSS MARGIN in terms of total $’s for all 3 products.

Ham ($10/sand - $4.30/sand) = $5.70/sandwich; PB&J ($15/sand-$12/sand)=$3/sand; Tuna($6-$8.8)=($2.8/sand).

Compute the CONTRIBUTION margin in terms of total $’s for all 3products.

Ham ($10/sand - $2.50/sand) = $7.50/sandwich; PB&J ($15/sand-$6.8/sand)=$8.2/sand; Tuna($6-$5.2)=$0.8/sand.

Abbott is thinking about discontinuing the Tuna Sandwich product line. If it does so, it will reduce the janitorial salaries by $1,000. Should Abbott discontinue the Tuna sandwiches line? Why or why not and

Assume that the toaster/machine can only run a total of 1100 hours or it will break. How many of each sandwich should abbott make? Show your work.

ESSAY QUESTIONS

Under what circumstances will absorption costing have LOWER reported operating income than variable costing and please explain how/why.

Answer rating: 100% (QA)

a Gross margin is calculated by subtracting cost of goods sold from revenue and div... View the full answer