In the last quarter of 2011/12 it is estimated that ABC will have produced and sold...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
In the last quarter of 2011/12 it is estimated that ABC will have produced and sold 20,000 units of their main product by the end of the year. At this level of activity it is estimated that the average unit cost will be: Direct material 30 Direct labour 10 Overhead: Fixed 10 Variable 10 60 This is in line with standard set at the start of the year. The management accountant of ABC is now preparing the budget for 2012-13. He has incorporated into his preliminary calculations the following expected cost increases: 20% Raw material: price increase of Direct labour: wage increase of Variable overhead; increase of Fixed overhead: increase of 5% 5% 25% The production manager believes that if a cheaper grade of raw material were to be used, this would enable the direct material cost per unit to be kept to $31.25 for 2012/13. The cheaper material would, however, lead to a reject rate estimated at 5% of the completed output and it would be necessary to introduce an inspection stage at the end of the manufacturing process to| identify the faulty items. The cost of this inspection process would be $40,000 per year (including $10,000 allocation of existing factory overhead). Established practice has been to reconsider the product's selling price at the time the budget is being prepared. The selling price is normally determined by adding a mark-up of 50% to unit cost. On this basis the product's selling price for 2011/12 has been $90 but the sales manager is worried about implications of continuing the cost plus 50% rule for 2012/13. He estimates that demand for the product varies with price as follows: Price 80 84 88 90 92 96 100 Demand (in *000) 25 23 21 20 19 17 15 Required: Decide whether ABC should use regular or the cheaper grade of material and to calculate the best price for the product, the optimal level of production and the profit that this should yield. In the last quarter of 2011/12 it is estimated that ABC will have produced and sold 20,000 units of their main product by the end of the year. At this level of activity it is estimated that the average unit cost will be: Direct material 30 Direct labour 10 Overhead: Fixed 10 Variable 10 60 This is in line with standard set at the start of the year. The management accountant of ABC is now preparing the budget for 2012-13. He has incorporated into his preliminary calculations the following expected cost increases: 20% Raw material: price increase of Direct labour: wage increase of Variable overhead; increase of Fixed overhead: increase of 5% 5% 25% The production manager believes that if a cheaper grade of raw material were to be used, this would enable the direct material cost per unit to be kept to $31.25 for 2012/13. The cheaper material would, however, lead to a reject rate estimated at 5% of the completed output and it would be necessary to introduce an inspection stage at the end of the manufacturing process to| identify the faulty items. The cost of this inspection process would be $40,000 per year (including $10,000 allocation of existing factory overhead). Established practice has been to reconsider the product's selling price at the time the budget is being prepared. The selling price is normally determined by adding a mark-up of 50% to unit cost. On this basis the product's selling price for 2011/12 has been $90 but the sales manager is worried about implications of continuing the cost plus 50% rule for 2012/13. He estimates that demand for the product varies with price as follows: Price 80 84 88 90 92 96 100 Demand (in *000) 25 23 21 20 19 17 15 Required: Decide whether ABC should use regular or the cheaper grade of material and to calculate the best price for the product, the optimal level of production and the profit that this should yield.
Expert Answer:
Answer rating: 100% (QA)
So the existing cost structure as follows Direct material 30 Direct labour 10 Overheadfixed 10 Overh... View the full answer
Related Book For
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date:
Students also viewed these accounting questions
-
It is estimated that while world coffee prices hover around 50 per pound, production costs are around 80 per pound. According to a report issued in September 2002 by the relief agency Oxfam, prices...
-
It is estimated that 90 billion plastic carry-out bags are produced annually in the United States. In recent years, the number of tons of plastic bags that are recycled has grown exponentially from...
-
It is estimated that the day Mt. St. Helens erupted (May 18, 1980), about 4.0 105 tons of SO2 were released into the atmosphere. If all the SO2 were eventually converted to sulfuric acid, how many...
-
Below is the article related to the funding and construction of the SD Padres' ballpark in downtown San Diego. The article below relates to the Padres' decision to incur substantial payoff...
-
The American Society for Quality (ASQ) conducted a salary survey of all its members. ASQ members work in all areas of manufacturing and service- related institutions, with a common theme of an...
-
A researcher has obtained the following salary figures for the mayor, police chief, and fire chief for a sample of U.S. cities. Assuming these to be a random sample of major cities in the United...
-
Consider the multiple regression model fit to the gasoline mileage data in Problem 3.5. Problem 3.5 Consider the gasoline mileage data in Table B.3. a. Construct a normal probability plot of the...
-
If you were a chief marketing officer, what metrics might you use to evaluate the performance of the IS organization in your company?
-
Phil and Philia are married and have filed as married filing jointly over the years. If they have taxes, interest, and penalties owed, whom can the government collect part or all the tax liabilities...
-
Suppose a researcher conducts an analysis of the relationship between cardiovascular disease and type II diabetes. The basic summary of the findings are presented in the following table. A) Describe...
-
1. Choose a career that you are (considering) pursuing. On the scale from loyalty to obedience to free agency, where do you imagine most employees in that line of work fall? Because? 2. Imagine a job...
-
Quartiles Violent crimes include rape, robbery, assault, and homicide. The following is a summary of the violent-crime rate (violent crimes per 100,000 population) for all states of a country in a...
-
In a certain city, the average 20 to 29 year old man is 69.8 inches tall, with a standard deviation of 3.0 inches, while the average 20 to 29 year old woman is 64.3 inches tall, with a standard...
-
The following data represent the flight time (in minutes) of a random sample of seven flights from one city to another city. 284, 270, 260, 266, 257, 263, 269 Compute the range and sample standard...
-
Sample: 4, 46, 14, 51, 32, 23, 28, 30, 36, 27 By hand, find the population variance and standard deviation or the sample variance and standard deviation as indicated.
-
The median for the given set of six ordered data values is 30.5. What is the missing value? 5 12 25 41 58
-
A stock just paid a $2.00 dividend this morning, you believe that dividends will grow constantly starting today at a rate of 6% per year. If you require a 10% return to own this stock, what is a fair...
-
Havel says the grocer doesnt believe what is on the sign and indeed, he says the grocers customers will barely notice it. But Havel maintains that the sign serves a specific function. How would you...
-
The total cost for a production process is equal to $1,000 plus two times the number of units produced. The mean and variance for the number of units produced are 500 and 900, respectively. Find the...
-
Bags of a chemical produced by a company have impurity weights that can be represented by a normal distribution with a mean of 12.2 grams and a standard deviation of 2.8 grams. A random sample of 400...
-
In a random sample of 12 analysts, 7 believed that automobile sales in the United States were likely to be significantly higher next year than in the present year, 2 believed that sales would be...
-
Financial items for George Karatsis IT Services on 31 May 2024 are presented below in alphabetical order. Required (a) Prepare a statement of financial position similar to the one in figure 2.2. (b)...
-
During the year ended 30 June 2024, Skilled Services, a provider of temporary secretary personnel, had collected receipts from clients for a total value of \($250000.\) Wages of \($136000\) had been...
-
Rebecca Tallance operates a rent a dress business from her home. She keeps her accounting records for business activities completely separate from her records for personal activities. At 30 June...
Study smarter with the SolutionInn App