Refer to the information for XBlast in Problem 13-34.

Data From Problem 13-34

XBlast manufactures an entry-level hoverboard, HOV-X. Pursuing a cost-leadership strategy, the company has tried to improve quality and reduce costs. As a result of the actions taken over the last year, quality has significantly improved in 2020 while rework and unit costs of the HOV-X have decreased. XBlast has reduced manufacturing capacity because capacity is no longer needed to support rework. XBlast has also lowered HOV-X’s selling price to gain market share and unit sales have increased. Information about the current period (2020) and last period (2019) follows:

Required

1. Calculate the amount and cost of 

(a) Unused manufacturing capacity and 

(b) Unused selling and customer-service capacity at the beginning of 2020 based on actual production and actual number of customers served in 2020.

2. Suppose XBlast can add or reduce its selling and customer-service capacity in increments of 10 customers. What is the maximum amount of costs that XBlast could save in 2020 by downsizing selling and customer-service capacity?

3. XBlast, in fact, does not eliminate any of its unused selling and customer-service capacity. Why might XBlast not downsize?

Transcribed Image Text:

1. Units of HOV-X produced and sold 2. Selling price 3. Direct materials used (kitsa) 4. Direct material cost per kita 5. Manufacturing capacity in kits processed 6. Total conversion costs 7. Conversion cost per unit of capacity (row6+ row5) 8. Selling and customer-service capacity 9. Total selling and customer-service costs 10. Selling and customer-service capacity cost per customer (row9 = row8) *A kit is composed of all the major components needed to produce a hoverboard. 2019 15,000 $125 18,000 $30 30,000 $660,000 $22 200 customers $35,000 $175 2020 25,000 $100 27,000 $30 28,000 $616,000 $22 200 customers $38,000 $190