Musical Co. manufactures three types of musical instruments, Doh. Rae, and Mee. The budgeted information for...

 

Transcribed Image Text:

Musical Co. manufactures three types of musical instruments, Doh. Rae, and Mee. The budgeted information for one unit of musical instrument for 2021 is below. Doh 3,500 Rae Mee 2,500 Estimated annual demand (in units) Other information (per unit) Sales price 4,000 $200 $340 $480 100 Direct materials 70 90 Direct labour 30 75 60 Variable manufacturing overhead Fixed manufacturing overhead Fixed selling and admin expenses Machine time required 40 55 70 35 60 150 10 20 40 1 hour 2.5 hours 2 hours Required (Treat each of the following situations independently) (a) (5 marks) Musical Co. received an offer from a supplier to make 3,500 units of Doh at a price of $150 per unit. Musical Co. will pack the product from the supplier at a labour cost of $6 per unit. The facilities that will be freed-up can be used to make 1,000 units of another instrument (Fah) which has a unit contribution margin of $80. Should Musical Co. accept the offer? Using incremental analysis, show the amount that it will gain or lose from this new offer. (b) (8 marks) Musical operates in a competitive market. The maximum number of instruments that Musical can sell each year is the estimated annual demand given in the table above. Assume that the company has only 14,000 machine hours available to manufacture the three products. Recommend to management the products that should be manufactured in order to maximize the company's net income. What is the total contribution margin that the company will make based on your recommended choice of products? Will your recommendation change if the company has 20,000 machine hours? Explain. Musical Co. manufactures three types of musical instruments, Doh. Rae, and Mee. The budgeted information for one unit of musical instrument for 2021 is below. Doh 3,500 Rae Mee 2,500 Estimated annual demand (in units) Other information (per unit) Sales price 4,000 $200 $340 $480 100 Direct materials 70 90 Direct labour 30 75 60 Variable manufacturing overhead Fixed manufacturing overhead Fixed selling and admin expenses Machine time required 40 55 70 35 60 150 10 20 40 1 hour 2.5 hours 2 hours Required (Treat each of the following situations independently) (a) (5 marks) Musical Co. received an offer from a supplier to make 3,500 units of Doh at a price of $150 per unit. Musical Co. will pack the product from the supplier at a labour cost of $6 per unit. The facilities that will be freed-up can be used to make 1,000 units of another instrument (Fah) which has a unit contribution margin of $80. Should Musical Co. accept the offer? Using incremental analysis, show the amount that it will gain or lose from this new offer. (b) (8 marks) Musical operates in a competitive market. The maximum number of instruments that Musical can sell each year is the estimated annual demand given in the table above. Assume that the company has only 14,000 machine hours available to manufacture the three products. Recommend to management the products that should be manufactured in order to maximize the company's net income. What is the total contribution margin that the company will make based on your recommended choice of products? Will your recommendation change if the company has 20,000 machine hours? Explain.

Answer rating: 100% (QA)

a Make Doh Buy Doh Incremental Increase Decrease in Net Income Direct materials 3500 x 70 245000 0 2... View the full answer