Please answer question 5 a-f.

Exhibit 1. Existing Capacity Available and Used and Capacity Costs (Annual)

Resource Practical Capacity Cost Driver Purchased Cost of Capacity Used Capacity

Design/Drafting 20,000 Design hours $500,000 19,500

Engineering 15,000 Engineering hours $750,000 14,750

Fabrication 40,000 Number of parts $30,000 39,000

Powder coating 400,000 Square feet $1,800,000 210,000

Scheduling/setup 750 Job setups $756,000 640

General factory 80,000 Machine hours $2,400,000 64,000

Exhibit 2. Resource Needs for Potential New Products

Resource (Cost Level) Cost Driver Pool Shade Requirements Trellis Requirements

Design/Drafting (product) Design hours 30 20

Engineering (product) Engineering hours 4 2

Fabrication (unit) Number of parts 40 22

Powder coating (unit) Square feet 1,600 170

Scheduling/setup (unit) Job setups 1 1

General factory (unit) Machine hours 80 10

Pool Shade Trellis

Selling price/unit $42,500 $4,300

Material cost/unit $18,750 $700

Desired Profit on Sales 0.30

Demand: Pool shades 120

Demand: Trellises 60

Exhibit 3. Purchase Price of Additional Capacity

Resource Capacity of next step Cost Driver Cost of Next Step

Design/Drafting 2,000 Design hours $50,000

Engineering 2,000 Engineering hours $110,000

Fabrication 3,000 Parts $3,150

Powder coating 20,000 Square feet $100,000

Scheduling/setup 5,000 Job setups $4,000

General factory 2,000 Machine hours $36,000

5. Resource Usage Approach: Assume the decisions to make pool shades and trellises are considered to be a long-term but small-scale decision and that Chandler would make these products one at a time when time is available, so as not to not delay any of the custom orders. While still a tactical decision, excess capacity cannot be guaranteed beyond the current year. As such, Chandler feels a resource usage approach would be a more appropriate approach to evaluating the decision to make the products.

a. Compute the ABC rates for new resources.

b. Compute the incremental profit of making and selling the full demand of pool shades.

c. Compute the average cost of making one pool shade.

d. Compute the incremental profit of making and selling the full demand of trellises.

e. Compute the average cost of making one trellis.

f. Given the assumptions aforementioned (such as long-term and small-scale), would Chandlers management choose to make either or both of the products? Explain your answer.