Monster Trucks Inc. is a medium-sized toy manufacturer that makes RC (radio-controlled) truck toys. Monster Trucks operates in a highly competitive industry against some very large toy manufacturers such as Mattel and Hasbro. To compete effectively in this industry
Monster must keep costs low while keeping quality high. The following information has been gathered for Monster Trucks for 2009 and 2010.
|
|
2010
|
2009
|
|
Toys made
|
4,800
|
3,950
|
|
Plant capacity
|
6,000
|
6,000
|
|
# of Toys scrapped
|
120
|
142
|
|
Selling price
|
$45
|
$42.50
|
|
DM Cost per unit
|
$15
|
$13
|
|
Direct labour hours
|
2500
|
2150
|
|
Conversion costs
|
$50,000
|
$42,500
|
|
Selling and administrative costs
|
$18,000
|
$17,000
|
|
# of Research staff
|
2
|
2
|
|
R&D Costs
|
$38,000
|
$42,000
|
Conversion costs for Monster Trucks are made up of direct labour and overhead costs. Direct labour is charged at a rate of $10 per hour. All overhead costs are fixed.
Required:
1. Calculate operating income for Monster Trucks for both 2009 and 2010.