Unter Components manufactures low-cost navigation systems forinstallation in ride-sharing cars. It sells these systems tovarious car services that can customize them for their locale andbusiness model. It manufactures two systems, the Star100 and theStar150, which differ in terms of capabilities. The followinginformation is available:
Costs per Unit Star100 Star150 Direct materials $ 70 $ 80 Direct labor 24 30 Variable overhead 10 15 Fixed overhead 95 125 Total cost per unit $ 199 $ 250 Price $ 280 $ 380 Units sold 4,000 2,000
The average wage rate is $15 per hour. Variable overhead varieswith the quantity of direct labor-hours. The plant has a capacityof 20,000 direct labor-hours, but current production uses only10,400 direct labor-hours.
Required:
a. A nationwide car-sharing service has offeredto buy 2,400 Star100 systems and 2,400 Star150 systems if the priceis lowered to $190 and $240, respectively, per unit.
a-1. If Unter accepts the offer, how manydirect labor-hours will be required to produce the additionalsystems?
a-2. Complete the following table to determinethe differential profit increase (or decrease) if Unter acceptsthis proposal. Prices on regular sales will remain the same. .
b-1. Supposed that the car-sharing service hasoffered instead to buy 3,400 each of the two models at $190 and$240, respectively. This customer will purchase the 3,400 units ofeach model only in an all-or-nothing deal. That is, Unter mustprovide all 3,400 units of each model or none. Unter's managementhas decided to fill the entire special order for both models. Inview of its capacity constraints, Unter will reduce sales toregular customers as needed to fill the special order. Complete thetable below to determine the total contribution margin with thespecial order added.
b-2. How much will the profits change if theorder is accepted? Assume that the company cannot increase itsproduction capacity to meet the extra demand.
c-1. Assume that, in the situation presented inrequirement b-1, the plant can work overtime. Direct labor costsfor the overtime production increase to $22.50 per hour. Variableoverhead costs for overtime production are $4 per hour more thanfor normal production. Complete the table below to determine thetotal contribution margin.
c-2. How much will the profits change in thissituation?
Unter Components manufactures low-cost navigation systems forinstallation in ride-sharing cars. It sells these systems tovarious car services that can customize them for their locale andbusiness model. It manufactures two systems, the Star100 and theStar150, which differ in terms of capabilities. The followinginformation is available:
| Costs per Unit | Star100 | Star150 | ||||
| Direct materials | $ | 70 | $ | 80 | ||
| Direct labor | 24 | 30 | ||||
| Variable overhead | 10 | 15 | ||||
| Fixed overhead | 95 | 125 | ||||
| Total cost per unit | $ | 199 | $ | 250 | ||
| Price | $ | 280 | $ | 380 | ||
| Units sold | 4,000 | 2,000 | ||||
The average wage rate is $15 per hour. Variable overhead varieswith the quantity of direct labor-hours. The plant has a capacityof 20,000 direct labor-hours, but current production uses only10,400 direct labor-hours.
Required:
a. A nationwide car-sharing service has offeredto buy 2,400 Star100 systems and 2,400 Star150 systems if the priceis lowered to $190 and $240, respectively, per unit.
a-1. If Unter accepts the offer, how manydirect labor-hours will be required to produce the additionalsystems?
a-2. Complete the following table to determinethe differential profit increase (or decrease) if Unter acceptsthis proposal. Prices on regular sales will remain the same. .
b-1. Supposed that the car-sharing service hasoffered instead to buy 3,400 each of the two models at $190 and$240, respectively. This customer will purchase the 3,400 units ofeach model only in an all-or-nothing deal. That is, Unter mustprovide all 3,400 units of each model or none. Unter's managementhas decided to fill the entire special order for both models. Inview of its capacity constraints, Unter will reduce sales toregular customers as needed to fill the special order. Complete thetable below to determine the total contribution margin with thespecial order added.
b-2. How much will the profits change if theorder is accepted? Assume that the company cannot increase itsproduction capacity to meet the extra demand.
c-1. Assume that, in the situation presented inrequirement b-1, the plant can work overtime. Direct labor costsfor the overtime production increase to $22.50 per hour. Variableoverhead costs for overtime production are $4 per hour more thanfor normal production. Complete the table below to determine thetotal contribution margin.
c-2. How much will the profits change in thissituation?
