Hi-Speed Electronics manufactures low-cost, consumer-gradecomputers. It sells these computers to various electronicsretailers to market under store brand names. It manufactures twocomputers, the Lightning 2.0 and the Lightning 2.4, which differ interms of speed, included memory, and included hard drive capacity.The following information is available:
Costs per Unit Lightning 2.0 Lightning 2.4 Directmaterials $ 74 $ 84 Direct labor 32 40 Variableoverhead 15 20 Fixed overhead 99 129 Total cost perunit $ 220 $ 273 Price $ 290 $ 390 Units sold 4,000 2,000
The average wage rate is $20 per hour. Variable overhead varieswith the quantity of direct labor hours. The plant has a capacityof 20,000 direct labor-hours, but current production uses only10,400 direct labor-hours.
Required:
a. A nationwide discount chain has offered to buy 2,500 Lightning2.0 computers and 2,500 Lightning 2.4 computers if the price islowered to $200 and $250, respectively, per unit.
a-1. If Hi-Speed accepts the offer, how many direct labor-hours willbe required to produce the additional computers?
a-2. How much will the profit increase (or decrease) if Hi-Speedaccepts this proposal? Prices on regular sales will remain thesame.
b. Suppose that the nationwide discount chain has offered insteadto buy 3,500 each of the two models at $200 and $250, respectively.This customer will purchase the 3,500 units of each model only inan all-or-nothing deal. That is, Hi-Speed Electronics must provideall 3,500 units of each model or none. Hi-Speed's management hasdecided to fill the entire special order for both models. In viewof its capacity constraints, Hi-Speed will reduce sales to regularcustomers as needed to fill the special order. How much will theprofits change if the order is accepted? Assume that the companycannot increase its production capacity to meet the extrademand.
c. Answer the question in requirement (b), assuming instead thatthe plant can work overtime. Direct labor costs for the overtimeproduction increase to $30.00 per hour. Variable overhead costs forovertime production are $5 per hour more than for normalproduction.
Hi-Speed Electronics manufactures low-cost, consumer-gradecomputers. It sells these computers to various electronicsretailers to market under store brand names. It manufactures twocomputers, the Lightning 2.0 and the Lightning 2.4, which differ interms of speed, included memory, and included hard drive capacity.The following information is available: |
| Costs per Unit | Lightning 2.0 | Lightning 2.4 | ||||
| Directmaterials | $ | 74 | $ | 84 | ||
| Direct labor | 32 | 40 | ||||
| Variableoverhead | 15 | 20 | ||||
| Fixed overhead | 99 | 129 | ||||
| Total cost perunit | $ | 220 | $ | 273 | ||
| Price | $ | 290 | $ | 390 | ||
| Units sold | 4,000 | 2,000 | ||||
The average wage rate is $20 per hour. Variable overhead varieswith the quantity of direct labor hours. The plant has a capacityof 20,000 direct labor-hours, but current production uses only10,400 direct labor-hours. |
| Required: |
| a. | A nationwide discount chain has offered to buy 2,500 Lightning2.0 computers and 2,500 Lightning 2.4 computers if the price islowered to $200 and $250, respectively, per unit. | |
| a-1. | If Hi-Speed accepts the offer, how many direct labor-hours willbe required to produce the additional computers? |
| a-2. | How much will the profit increase (or decrease) if Hi-Speedaccepts this proposal? Prices on regular sales will remain thesame. |
| b. | Suppose that the nationwide discount chain has offered insteadto buy 3,500 each of the two models at $200 and $250, respectively.This customer will purchase the 3,500 units of each model only inan all-or-nothing deal. That is, Hi-Speed Electronics must provideall 3,500 units of each model or none. Hi-Speed's management hasdecided to fill the entire special order for both models. In viewof its capacity constraints, Hi-Speed will reduce sales to regularcustomers as needed to fill the special order. How much will theprofits change if the order is accepted? Assume that the companycannot increase its production capacity to meet the extrademand. |
| c. | Answer the question in requirement (b), assuming instead thatthe plant can work overtime. Direct labor costs for the overtimeproduction increase to $30.00 per hour. Variable overhead costs forovertime production are $5 per hour more than for normalproduction. |
