Homeowners Heroes Inc., manufactures household products such as win-dows, light fixtures, ladders, and work tables. During the year it produced 10,000 Model 10X windows but only sold 5,000 units at $40 each. The remaining units cannot be sold through normal channels. Cost for inven-tory purposes on December 31 included the following data on the unsold units:
Materials.... ... .... .... .... .... ... .... .... .... ... .... .... ... $10.00
Labor . . . .... ... .... .... .... .... ... .... .... .... ... .... .... ... 5.00
Variable overhead. .... .... .... ... .... .... .... ... .... .... ... 3.00
Fixed overhead.... .... .... .... ... .... .... .... ... .... .... ... 2.00
Total cost per window . . .... ... .... .... .... ... .... .... ... $20.00
Homeowners Heroes can sell the 5,000 windows at a liquidation price of $20.00 per window, but it will incur a packaging and shipping charge of $7.50 per window.
Required:
1. Identify the relevant costs and revenues for the liquidation sale alter-native. Is Homeowners Heroes better off accepting the liquidation price rather than doing nothing?
2. Assume that Model 10X can be reprocessed to another size window, Model 20X, which will require the same amount of labor and LO7 LO8 Chapter 10 – Cost Analysis for Management Decision Making 551overhead as was required to initially produce, but sells for only $33. Determine the most profitable course of action – liquidate or reprocess.
Homeowners Heroes Inc., manufactures household products such as win-dows, light fixtures, ladders, and work tables. During the year it produced 10,000 Model 10X windows but only sold 5,000 units at $40 each. The remaining units cannot be sold through normal channels. Cost for inven-tory purposes on December 31 included the following data on the unsold units:
Materials.... ... .... .... .... .... ... .... .... .... ... .... .... ... $10.00
Labor . . . .... ... .... .... .... .... ... .... .... .... ... .... .... ... 5.00
Variable overhead. .... .... .... ... .... .... .... ... .... .... ... 3.00
Fixed overhead.... .... .... .... ... .... .... .... ... .... .... ... 2.00
Total cost per window . . .... ... .... .... .... ... .... .... ... $20.00
Homeowners Heroes can sell the 5,000 windows at a liquidation price of $20.00 per window, but it will incur a packaging and shipping charge of $7.50 per window.
Required:
1. Identify the relevant costs and revenues for the liquidation sale alter-native. Is Homeowners Heroes better off accepting the liquidation price rather than doing nothing?
2. Assume that Model 10X can be reprocessed to another size window, Model 20X, which will require the same amount of labor and LO7 LO8 Chapter 10 - Cost Analysis for Management Decision Making 551overhead as was required to initially produce, but sells for only $33. Determine the most profitable course of action - liquidate or reprocess.