21:29 4 Chapter 11 (EOC & Product Mix) Graded Assignment Template . . . fx B C D E G Question One--Product Mix Urie's Urns makes three different models: the keepsake, the eulogy, and the emperor. Urie's only has Z,000 machine hours worth of monthly production capacity. Information about the customer demand, production time, and profitability of these three product models is listed below. Unit Unit Demand (in Production Unit Selling Variable units) Time (Hours) Price Cost Keepsake Urns 4,500 1.00 $ 125.00 $ 40.00 Eulogy Urns 2,000 2.00 200.00 85.00 6 Emperor Urns 800 2.50 350.00 100.00 Part One Use the information above to determine the contribution margin per unit of the constraint for each 8 type of urn. 9 Keepsake Eulogy Emporer 10 Urns Produced per Machine Hour 11 Times: Contribution Margin per Unit 12 Contribution Margin per Machine Hour 13 Part Two Like all companies with production constraints, Urie's will allocate as much production capacity as customer demand warrants to their products with the highest contribution margin per unit of the 14 constraint. Determine Urie's Urns total contribution margin at full capacity for its optimal product mix. 15 Keepsake Eulogy Emporer Total 16 Contribution Margin per Machine Hour 17 Times: Machine hours used 18 Total Contribution Margin at Full Capacity 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 52 53 54 55 56 57 58 59 60 Product Mix Inventory OC Optimal Mi: +21:29 4 Chapter 11 (EOC & Product Mix) Graded Assignment Template . . . fx D G H M Part Two--Inventory Order Costs ABC Company will purchase 98,400 widgets to be used in production during the next year. The company will use an even amount of these widgets every month. ABC Company currently purchases widgets for $12 each from their supplier and the supplier charges ABC Company a $550 processing fee for each purchase of widgets they order. The supplier has offered to give ABC Company a 3% discount if they purchase all 8,400 widgets at the start of the year instead of making monthly purchases. ABC Company currently invests its free cash flow into a growth and income fund which has historically returned 5.5% annually. Relevant Costs Widgets needed annually 98,40 Widgets needed monthly 8,20 Unit purchase price of widgets 12.00 Discount rate on annual purchase 3.0% Processing fee per purchase order 550.00 Annual RoR on potential investment 5.5% art One Determine the unit cost over inventory for each purchase alternative. Alternative Unit Cost 13 Orders of 8.200 monthly 14 Orders of 98.400 annually 15 Part Two 16 Determine the average investment in inventory for both purchase alternatives. Total Alternative Units per Average Unit Cost Purchase inventory Investment cost in Inventory Orders of 8,200 monthly 19 Orders of 98,400 annually 20 21 22 Determine the relevant cost of each purchase alternative. 23 Orders of Orders of 8,200 98,400 Difference monthly annually 25 Annual purchase order costs 26 Annual inventory costs 27 Opportunity Cost 28 Relevant costs 29 30 Part Four If purchasing a large quantity of widgets annually would require ABC Company to rent an additional warehouse for $2,000 a month, would this change the company's decision? Why? Assume that ABC Company would not need to rent any additional storage space if the company purchased the smaller quantity monthly. 75 Product Mix Inventory OC Optimal Mix +