I will give you question 7-64 tomorrow its long do you think I can get it before wednesday? at least 6-52?
6-52 Pricing decision
Refer to the data for Sweditrak Corporation presented in Case 4-47 the following additional information is now available. The production volume budgeted for each product in weeks 47 to 52 is the same as the volume Level in week 46. In early December, the company is considering subcontracting with a French company to produce 400 units of the deluxe model per week on a 4-week trial basis for $200 per unit. Accepting this purchase offer would restrict Sweditrak's own deluxe production to 50 units per week.
- a) Is it profitable for Sweditrak to accept this offer? (Assume the activity-based cost system is used, and use the data from weeks 45 and 46 to estimate the variable support costs.) What additional qualitative factors should Sweditrack's own deluxe production to 50 units per week. Suppose that Sweditrak is please with the quality of the trial shipment and the French company is willing to commit to produce 400 units of the deluxe model each week for the next to remain stable at 450 units per week for the next 3 years. During this 3-year period, Sweditrak can adjust the capacity of each department to any desired levels. Capacity changes will result in proportional changes in fixed costs.
- b) What are the relevant costs for this long-term decision?
- c) Will it be profitable for Sweditrak to accept the long term offer?
7-62 Environmental costs, activity based costing, Kaizen costing
Bevens Co. makes two products, product X and product Y. Bevans has produced product X for many years without generating any hazardous wastes. Recently, Bevans developed product Y, which is superior to product X in many respects. However, production of production Y generates hazardous wastes. Because of the hazardous wastes, Bevans now must deal with hazardous waste disposal, governmental reports and inspections, and safe handling procedures.
Bevans Co. uses a cost driver rate based on machine hours to assign manufacturing support costs to its two products. Because of concerns about the accuracy of the product costing system, Joel Dempsey, the controller, undertook an activity-based costing analysis of the manufacturing support costs. The resulting cost information is summarized in the following table:
Product X Product Y
Direct costs (material plus labor) 9,000,000 4,000,000
Unit-level support 2,000,000 1,000,000
Batch-level support 15,000,000 20,000,000
Product level support 5,000,000 8,000,000
Environmental support 0 14,000,000
Total machine hours 10,000,000 6,000,000
Number of units 100,000,000 40,000,000
- a) Compute product costs per unit for products X and Y using the current cost driver rate based on machine hours for manufacturing support costs.
- b) Compute product costs per unit for products X and Y using the activity based costing figures provided in the table.
- c) Explain the reasons for the differences in cost for each product using the cost systems. (you may wish to compute unit-level support, product-level support, and environmental support costs per unit.)
- d) Bevans has been selling products X and Y at a price equal to 1.5 times the product cost computed using the machine-hour based cost driver rate for manufacturing support costs. Compute these prices and provide recommendations to Bevans management concerning profit improvement through pricing changes and cost reduction through manufacturing improvements.