Question

1)Treadlight produces two types of exercise treadmills: regularand deluxe. The exercise craze is such that TreadLight could useall its available machine hours to produce either model. The twomodels are processed through the same production departments. Datafor both models is as follows:

Sale Price: Deluxe per unit ($1,010), Regular per unit($560)

Costs:

Direct materials: deluxe per unit ($320), Regular per unit($90)

direct labor: deluxe per unit ($82), regular per unit ($184)

variable manufacturing overhead: deluxe per unit ($240), regularper unit ($80)

fixed manufacturing overhead *: deluxe per unit ($126), regularper unit ($42)

variable operating expenses: deluxe per unit ($117) , regularper unit ($69)

total cost: deluxe per unit ($885), regular per unit ($465)

operating income: deluxe per unit ($125), regular per unit($95)

*allocated on the basis of machine hours

a. what is the constraint?

b. Which model should Treadlight produce? (Hint: TreadLight canproduce either 1 deluxe treadmill or 3 regular treadmills permachine hour.)

c. Should Treadlight produce both models? If so, compute the mixthat will maximize operating income.

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2) Cool Systems manufactures an optical switch that it uses inits final product. The switch has the following manufacturing costsper unit:

Direct materials: $ 10.00

direct labor: $1.50

variable overhead: $1.00

fixed overhead:$6.50

manufacturing product cost:$19.00

Another company has offered to sell Cool Systems the switch for$9.50 per unit. If Cool Systems buys the switch from the outsidesupplier, the manufacturing facilities that will be idled cannot beused for any other purpose, yet none of the fixed costs areavoidable.

1. prepare an outsourcing analysis to determine if Cool Systemsshould make or buy the switch.

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3) Naturalmaid processes organic milk into plain yogurt.Naturalmaid sells plain yogurt to hospitals, nursing homes, andrestaurants in bulk, one-gallon containers. Each batch, processedat a cost of $880, yields 900 gallons of plain yogurt. Naturalmaidsells the one-gallon tubs for $6 each, and spends $0.16 for eachplastic tub. Naturalmaid has recently begun to reconsider itsstrategy. Naturalmaid wonders if it would be more profitable tosell individual-size portions of fruited organic yogurt at localfood stores. Naturalmaid could further process each batch of plainyogurt into 19200 individual portions (3/4 cup each) of fruitedyogurt. A recent market analysis indicates that demand for theproduct exists. Naturalmaid would sell each individual portion for$0.54. Packaging would cost $0.07 per portion, and fruit would cost$0.10 per portion. Fixed costs would not change.

a)Should naturalmaid continue to sell only the gallon- sizeplain yogurt (sell as is) , or convert the plain yogurt intoindividual- size portions of fruited yogurt (process further)? why?

calculate the net benefit per batch under each alternative. (Foraccounts with a $0 balance, make sure to enter $0 in theappropriate column.)

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4) Members of the board of directors of Safety Step havereceived the following operating income data for the year ended May31,2012 :

Safety Step

income statement

For the year ended May 31, 2012

Sales Revenue: Product line industrial systems ($350000),product line household systems ($360,000), total ($710,000)

cost of goods sold:

variable: product line industrial systems (34000), product linehousehold systems (47,000), total (81,000)

fixed: product line industrial systems (230,000), product linehousehold systems (69,000), total (299,000)

total cost of goods sold: product line industrial systems($264000), product line household systems(116,000), total(380000)

gross profit: product line industrial systems ($86,000), productline household systems (244,000), total (330,000)

marketing and administrative expenses:

variable: product line industrial systems (69,000), product linehousehold systems (76,000), total (145000)

fixed: product line industrial systems (41000), product linehousehold systems (24,000), total (65,000)

total marketing administrative exp.: product line industrialsystems (110,000), product line household systems (100,000),Total($210,000)

operating income (loss): product line industrial systems(-$24,000), product line household systems ($144,000), total$120,000

Members of the board are surprised that the industrial systemsproduct line is losing money. They commission a study to determinewhether the company should drop the line. Company accountantsestimate that dropping industrial systems will decrease fixed costof goods sold by $81,000 and decrease fixed marketing andadministrative expenses by $14,000.

1. prepare an incremental analysis to show whether Safety Stepshould drop the industrial systems product line.

2. Prepare contribution margin income statements to show SafetyStep's total operating income under the two alternatives: (a) withthe industrial systems line and (b) without the line . Compare thedifference between the two alternatives' income numbers to youranswer to requirement 1.

3. What have you learned from the comparison in requirement2?