Belknap Manufacturing has approached you, a CGA, with a problem. The company makes two products: A12...
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Belknap Manufacturing has approached you, a CGA, with a problem. The company makes two products: A12 and B15. Demand for B15 has been overwhelming; there is virtually no competition for this item and several customers have offered to pay up to $48.00 for this product, which Belknap has priced at $27.00 per unit. The prime cost of manufacture for B15 is $6.26. Fatima, the company president, is puzzled since the demand for B15 has not resulted in increased company profitability. The company's costing system assigns overhead to the products based on direct labour-hours. The following information has been made available to you: Overhead (OH) cost pools and activity levels for 2008: OH Cost Pool Activity Base Setup Batches Material moves Material moves Number of orders Order processing Engineering Engineering hours Machine maintenance Machine hours Activity Planned production Material moves Number of orders Planned Activity Level 30 batches 90 moves 140 orders 10,000 hours 18,000 hours Engineering hours Machine hours Direct labour-hours Planned Activity Level 10,000 units 20 moves 50 orders 2,500 hours 6,000 liours 5,000 hours Budget (S) 24,000 90,000 For 2008, the company anticipates a total of 27,440 direct labour-hours will be used. Planned activity for product B15, which is produced in batches of 1,000 units, are as follows: L 210,000 200,000 162,000 Rate (5) 800 1,000 1,500 20 9 Required Write a brief memo to Fatima explaining why product B15 has not increased Belknap's profitability. Provide supporting calculations. Your memo should clearly explain why there is no apparent competition for product B15, why customers are willing to pay almost double the price per unit for this product, and what action(s) you recommend for Fatima. Your memo should be three or four paragraphs and must not exceed 350 words in length. You should perform all of the necessary calculations first and then write your memo. Belknap Manufacturing has approached you, a CGA, with a problem. The company makes two products: A12 and B15. Demand for B15 has been overwhelming; there is virtually no competition for this item and several customers have offered to pay up to $48.00 for this product, which Belknap has priced at $27.00 per unit. The prime cost of manufacture for B15 is $6.26. Fatima, the company president, is puzzled since the demand for B15 has not resulted in increased company profitability. The company's costing system assigns overhead to the products based on direct labour-hours. The following information has been made available to you: Overhead (OH) cost pools and activity levels for 2008: OH Cost Pool Activity Base Setup Batches Material moves Material moves Number of orders Order processing Engineering Engineering hours Machine maintenance Machine hours Activity Planned production Material moves Number of orders Planned Activity Level 30 batches 90 moves 140 orders 10,000 hours 18,000 hours Engineering hours Machine hours Direct labour-hours Planned Activity Level 10,000 units 20 moves 50 orders 2,500 hours 6,000 liours 5,000 hours Budget (S) 24,000 90,000 For 2008, the company anticipates a total of 27,440 direct labour-hours will be used. Planned activity for product B15, which is produced in batches of 1,000 units, are as follows: L 210,000 200,000 162,000 Rate (5) 800 1,000 1,500 20 9 Required Write a brief memo to Fatima explaining why product B15 has not increased Belknap's profitability. Provide supporting calculations. Your memo should clearly explain why there is no apparent competition for product B15, why customers are willing to pay almost double the price per unit for this product, and what action(s) you recommend for Fatima. Your memo should be three or four paragraphs and must not exceed 350 words in length. You should perform all of the necessary calculations first and then write your memo.
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B15 has not increased Belknap profitability because of higher Overheads They ne... View the full answer
Related Book For
Managing Business Process Flows Principles of Operations Management
ISBN: 978-0136036371
3rd edition
Authors: Ravi Anupindi, Sunil Chopra, Sudhakar Deshmukh, Jan Van Mieg
Posted Date:
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