Tyson Company manufactures two products called Alpha and Beta that sell for $120 and $80, respectively. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are given below:
|
|
Alpha
|
Beta
|
|
Direct materials
|
$30
|
$12
|
|
Direct labor
|
20
|
15
|
|
Variable manufacturing overhead
|
7
|
5
|
|
Traceable fixed manufacturing overhead
|
16
|
18
|
|
Variable selling expenses
|
12
|
8
|
|
Common fixed expenses
|
15
|
10
|
|
Total cost per -unit
|
$100
|
$68
|
Answer each question independently unless instructed otherwise.
1. Assume that Tyson expects to produce and sell 80,000 Alphas during the current year. One of Tyson's sales representatives has found a new customer that is willing to buy 10,000 additional Alphas for a price of $80 per unit. If Tyson accepts the customer's offer, how much will its profits increase or decrease? Show calculations.
2. Assume that Tyson expects to produce and sell 95,000 Alphas during the current year. One of Tyson's sales representatives has found a new customer that is willing to buy 10,000 additional Alphas for a price of $80 per unit. If Tyson accepts the customer's offer, it will decrease Alpha sales to regular customers by 5,000 units. Should Tyson accept this special order? Show calculations.
3. Assume that Tyson normally produces and sells 90,000 Betas per year. The traceable fixed manufacturing overhead could be saved if either product is discontinued, but the common fixed expenses could not be saved. If Tyson discontinues the Beta product line, how much will profit increase or decrease? Show calculations.
4. Assume that Tyson normally produces and sells 60,000 Betas and 80,000 Alphas per year. The traceable fixed manufacturing overhead could be saved if either product is discontinued, but the common fixed expenses could not be saved. If Tyson discontinues the Beta product line, its sales representatives could increase sales of Alpha by 15,000 units. If Tyson discontinues the Beta product line, how much would profit increase or decrease? Show calculations.
5. Assume that Tyson expects to produce and sell 80,000 Alphas during the current year. A supplier has offered to manufacture and deliver 80,000 Alphas to Tyson for a price of $80 per unit. Traceable fixed costs could be saved if Tyson no longer produces Alphas, but common fixed costs could not be saved. Show calculations to answer the following questions:
a.If Tyson buys 80,000 units from the supplier instead of making those units, how much will profit increase or decrease?
b.What is the maximum amount Tyson should be willing to pay the supplier?
6. Assume that Tyson expects to produce and sell 50,000 Alphas during the current year. A supplier has offered to manufacture and deliver 50,000 Alphas to Tyson for a price of $80 per unit. Traceable fixed costs could be saved if Tyson no longer produces Alphas, but common fixed costs could not be saved. Show calculations to answer the following questions:
a.If Tyson buys 50,000 units from the supplier instead of making those units, how much will profit increase or decrease?
b.What is the maximum amount Tyson should be willing to pay the supplier?