Oakland Precision Products (OPP) manufactures and sells a variety of scales for the kitchen and office. OPP
Question:
Oakland Precision Products (OPP) manufactures and sells a variety of scales for the kitchen and office. OPP sells primarily to kitchenware stores, discount stores, and so on. Two of the scales it produces for kitchen use are the Cook and Baker. The Cook is a basic food scale. The Baker has a greater capacity and special features that facilitate adjusting baking recipes for more or fewer people. The following information is available:
Costs per unit | Cook | Baker |
---|---|---|
Direct materials | $ 1.60 | $ 14.40 |
Direct labor | 0.80 | 3.20 |
Variable overhead | 0.60 | 2.40 |
Fixed overhead | 8.00 | 15.00 |
Total cost per unit | $ 11.00 | $ 35.00 |
Price | $ 15.00 | $ 45.00 |
Units produced and sold | 230,000 | 120,000 |
The average wage rate is $32 per hour. Variable overhead varies with the quantity of direct labor-hours. The plant has a capacity of 20,000 direct labor-hours, but current production uses only 17,750 direct labor-hours.
Assume that, in the situation presented in requirement b-1, the plant can work overtime. Direct labor costs for the overtime production increase to $45 per hour. Variable overhead costs for overtime production are $6 per hour more than for normal production. Complete the table below to determine the total contribution margin.
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How much will the profits change in this situation compared to the capacity constraints scenario in requirement b-1?
decrease in profit$$ | ||
$$$$$ |
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Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher