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Lecture

jan 28 bu 247

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Department
Business
Course
BU247
Professor
Esther Maier
Semester
Winter

Description
January 28 2014 BU247 2-66 Hudson Hydronics Inc is a company in Troy, New York, that sells high quality hydronic control devices. It manufactures two products, HCD1 and HCD2, for which of the following information is available. Item HCD1 HCD2 Special Order (a) Selling price $400 $500 $400 # of units 2000 1200 200 Costs: Direct materials $60 $75 Direct labour 80 100 Variable overhead 100 125 Fixed overhead 80 100 Total cost per unit $320 $400 Contribution margin $160 $200 $100 CM per DLH $40 $40 $20 Hours required $80/$20 = 4 hours $100/20 = 5 hours Capacity for 200 units? 200 x 5 = 1000 Impact on profit: 1000 +$20 000 direct labour hours x $20 or 200 units x $100 Opportunity cost: 100 $(20 000) units x $200 contribution margin New CM: $ 100 x 300 30 000 units Impact on profit $10 000 increase c) Answer the question in part b, assuming that the plant can work overtime. Direct labour costs for the overtime production. Relevant Items HCD 2 Overtime (Special order) Selling price $400 $400.00 # of Units 200 100 Variable costs Direct materials $75 $75.00 Direct labours (5 x $30 per hour100 $150.00 Variable overhead 125 187.50 Total $300 $412.50 Contribution Margin $100 $(12.50) Direct labour hours 5 Impact on income (regular) $20 000 $20 000 With overtime (-12.50 x 100) $(1250) Net increase in income $18750 *negative contribution margin only applies to the over time of the 100 units *we should not schedule the overtime since we would be losing money *if this customer is a long term one and it is a great way to prove to the customer for more potential transaction, then go for it 3-68 Client mix decision Description Customer Group Total A B C Average investment $900 $600 $200 in company products per month Hours devoted per 3 1.5 0.5 customer per month Average commission 6% 5% 4% percentage Current number of 20 60 120 customers Commissions $54 (900 x 6%) $30 (600 x 5%) $8 (200 x 4%) Average commission $18 (54/3) $20 (30/1.5) $16 (8/0.5) per hour Hours Required 60 90 60 210 hours (Available 160) Best client mix 60
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