Waterways uses time and material pricing when it bids on drainage projects. Budgeted data for 2013 for

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Waterways uses time and material pricing when it bids on drainage projects. Budgeted data for 2013 for installation division 1 are as follows. Part 1
Waterways uses time and material pricing when it bids on

Waterways desires a $13 profit margin per hour of labour and 15% profit on materials. Materials are transferred in from the manufacturing division. The total estimated invoice cost of materials in 2012 will be $625,000.
Instructions
(a) Calculate the rate per hour of labour.
(b) Calculate the material loading charge.
(c) Waterways has been asked to quote on a project to upgrade the drainage for a large city multi-use park. The drainage manager estimates that it will take about a month to complete the project and require 480 hours of labour and $80,000 of materials. Calculate the total estimated bid price for the park project.
Part 2
Waterways Corporation mass produces a simple water control and timer set. To produce these units, the company incurred variable expenses of $2,053,200 and fixed expenses of $683,338.
During 2012 it sold 696,000 units at an average selling price of $4.22 per unit. This was the combination of selling 346,000 units on the market for $5.50 each, and transferring 350,000 units to the installation divisions at variable cost. Top management had directed the use of this transfer price. Capacity for this unit was 736,000 units.
Recently, Ryan Smith, the plant manager, was approached by a new customer who off ered to pay $5.55 per unit for 60,000 units. Ryan, thinking about his bonus that was based on the department's operating income, readily accepted the order. Now he had to break the news to Lee Williams, the service vice-president in charge of installations. In order to fill the new order, Ryan would have to reduce the installation division by 20,000 units because he was not prepared to give up the margin he would receive from the outside sales. He suggested that Lee could purchase what he needed on the outside market.
Instructions
(a) Suppose Ryan accepts the order. Determine what the impact would be on:
1. The plant,
2. The installation division, and
3. The company as a whole.
(b) What do you think would be the best course of action in this situation? Explain.

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Managerial Accounting Tools for Business Decision Making

ISBN: 978-1118033890

3rd Canadian edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly

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