1. Donelan Products makes high-pressure lines for a variety of heavy road-improvement equipment. Donelan Products sells the lines to companies that manufacture and sell the equipment. The company's market research department has discovered a market for high-pressure lines used in automated manufacturing equipment, which Donelan Products currently does not produce. The market research department has indicated that lines would likely sell for $50 per foot.
Assume Donelan Products desires an operating profit of 20 percent of sales. What is the highest acceptable manufacturing cost per foot for which Donelan Products would produce the lines?
2. Charity Quilt Company produces and sells custom quilts. The company has a standard cost system to help control costs and has established the following labor standards for completing quilt tops.
Standard labor-hours per unit of output: 5.4 hours
Standard labor rate: $10.20 per hour
The following data pertain to quilt top operations for the last month.
Actual hours worked: 1,000 hours
Actual labor cost: $10,600
Actual output: 200 units
Compute the following variances
Direct labor rate and efficiency variances.
Prepare a brief explanation of the possible causes of each variance.
3. Foley Foods produces frozen meals targeted at the college student market. The production takes place in four stages: Preparation, in which the food is cleaned and cut; Cooking;Freezing; and Packaging. The company has a bottleneck in the Preparation stage, as shown below. Each "unit" refers to a container of 144 frozen meals.
|
Preparation
|
Cooking
|
Freezing
|
Packaging
|
|
Hourly Capacity
|
300 Units
|
312 Units
|
320 Units
|
340 Units
|
|
Actual Hourly Capacity
|
300 Units
|
300 Units
|
300 Units
|
300 Units
|
Each unit sells for $200 and has a variable cost of $120.
Option a. Foley can increase Preparation output by renting additional equipment that would cost $200 per hour and increase the hourly capacity in Preparation by 5 units.
Option b. Foley can pay its suppliers to perform some of the food preparation. This option would cost Foley $2 more per unit and would enable the company to increase its hourly output in Preparation by 10 units.
Foley can take either or both options as presented if viable. If both options are taken, the cost increases in Option b would apply to 310 units. What do you recommend? Show computations to support your answer.