Innealtoir Company has three plants located in the Republic of Industrial Engineers, and each plant manufactures a single product line with four different product models. The total annual production budget of Innealtoir company for the year 2023 is 500,000,000 IE Euros. The currency of the Republic of Industrial Engineers is IE Euros.

                  The company has intensive marketing campaigns and is continuously innovating all the product lines in each plant. As a result, the company’s market share of their advanced smart phone products in the advanced smart phones industry is 45%, 55% market share of their smart television products in the smart television industry, a dominating market share of their laptop computer products in the laptop computers industry at 75% which is attributed to the company’s extensive R&D effort.

                 With the company's market share per product line, the management does not want to allocate in excess of 15% from the total annual production budget for the year 2023 for the product line that dominates the very least in its industry. The product line that dominates most in its industry must be allocated with no less than 55% of the total budget for the year. Further, it has been agreed that the total budget of plant 1 and 2 should not exceed 40% of the total budget for the year.

                  Plant 1, which is in the Province of Therblig, manufactures advanced smart phones. ASP Model 1, ASP Model 2, ASP Model 3 and ASP Model 4. ASP Model 1 sells 2,000 IE Euros per unit, while ASP Model 2, 3, and 4 sells 20%, 30% and 40% respectively than that of ASP Model 1. Each ASP Model 1 requires 3.5 hours to assemble, ASP Model 4 requires 2.5 hours while the other two require 3 hours each. There are 250 assembly workers working for 9 hours each day with 30 min break in the morning and another in the afternoon, and 1-hour break during lunch. Each worker works 22 days per month. All assembly workers in the plant are fully vaccinated and they do not plan to take any vacation leaves for the year 2023. The cost to manufacture product 2 is 1,500 IE Euros and product 1 costs 20% less than product 2 while products 3 and 4 is 30% more than product 1. The plant’s production budget is allocated to direct labor, direct materials and manufacturing overhead at 50%, 30% and 20% respectively of the product's manufacturing cost per model.

                 Plant 2, which is in the Province of Taylor, manufactures smart television. The customer’s acquisition cost per unit of STV Model 1 is 8,000 IE Euros, while ASP Model 3 and 4 is 25% and 18% than that of STV Model 1 while STV model 2 is at 5,000 IE Euros. Each model requires 4 hours to assemble, and there are 200 assembly workers working for 9 hours each day with 30 min break in the morning and another in the afternoon, and 1-hour break in the middle of the day for lunch. Each worker works 22 days per month. It has been noted by HR that 50% of the workforce will be expected to utilize their 15 days sick leave credits and 15 days’ vacation leave credits for the year. The cost to manufacture product 2 is 3,500 IE Euros and product 4 costs 10% less than product 2 while products 1 and 3 is 30% more than product 4. The plant’s production budget is allocated to direct labor, direct materials, and manufacturing overhead at 30%, 60% and 10% respectively of the product's manufacturing cost per model.

                 Plant 3, which is in the Province of Gantt, manufactures laptop computers. Each model costs 5,500 IE Euros. The production cost per model is the same for all since the company was able to negotiate to the chip supplier to offer the same price for all the types of chips installed in each model resulting into greater profitability for company. LC Model 1 ,2, 3, and 4 sells for 30%, 45%,50%, 60% more than its production cost. The company uses robots to assemble the computers to ensure high product quality and avoid any production defect. There are 120 robots in the plant and each robot assembles at a speed of .5 hour per model. The plant’s production budget is allocated to robot maintenance, direct materials, and manufacturing overhead at 30%, 55% and 15% respectively of the product’s manufacturing cost per model. Each robot is operational for 9 hours per day and the company operates 22 days in a month.

                 Each plant aims to maximize its investment returns by allocating the appropriate budget for each plant. The current company’s investment returns in plant 1 is 55%, plant 2 at 35% and plant 3 at 28%.

 

1. How much is the budget for each product line to maximize investment returns? What do you recommend? (40 points).
2. Are the conditions of the budget allocation satisfied? Prove your answer. (10 points.)
3. Based on the calculated budget allocation per plant, how many product models should each plant manufacture to maximize:
   1. Gross Income (60 points)
   2. Net Income (60 points)
4. Are there unused resources? If there is an excess, what is the reason for the excess? Justify your answer. (30 points)
5. With your recommendations above, will the company utilize 100% of the production budget? What can you recommend further? (10 points)

 

Treadlight produces two types of exercise treadmills: regularand deluxe. The exercise craze is such that TreadLight could useall its available machine hours to produce either model. The twomodels are processed through the same production departments. Datafor both models is as follows:

Sale Price: Deluxe per unit ($1,010), Regular per unit($560)

Costs:

Direct materials: deluxe per unit ($320), Regular per unit($90)

direct labor: deluxe per unit ($82), regular per unit ($184)

variable manufacturing overhead: deluxe per unit ($240), regularper unit ($80)

fixed manufacturing overhead *: deluxe per unit ($126), regularper unit ($42)

variable operating expenses: deluxe per unit ($117) , regularper unit ($69)

total cost: deluxe per unit ($885), regular per unit ($465)

operating income: deluxe per unit ($125), regular per unit($95)

*allocated on the basis of machine hours

a. Which model should Treadlight produce? (Hint: TreadLight canproduce either 1 deluxe treadmill or 3 regular treadmills permachine hour.)

Prepare the product mix analysis

Treadlight

Product Mix Analysis

Sales price per unit: deluxe:_______,regular:________

variable costs per unit:deluxe:______,regular:_______

contribution margin per unit: deluxe:______,regular:______

units that can be produced each machine hour: deluxe:______,regular:_______

contribution margin per machine hour: deluxe:______,regular:_______

b. Should Treadlight produce both models? If so, compute the mixthat will maximize operating income.

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Members of the board of directors of Safety Step have receivedthe following operating income data for the year ended May 31,2012:

Safety Step

income statement

For the year ended May 31, 2012

Sales Revenue: Product line industrial systems ($350000),product line household systems ($360,000), total ($710,000)

cost of goods sold:

variable: product line industrial systems (34000), product linehousehold systems (47,000), total (81,000)

fixed: product line industrial systems (230,000), product linehousehold systems (69,000), total (299,000)

total cost of goods sold: product line industrial systems($264000), product line household systems(116,000), total(380000)

gross profit: product line industrial systems ($86,000), productline household systems (244,000), total (330,000)

marketing and administrative expenses:

variable: product line industrial systems (69,000), product linehousehold systems (76,000), total (145000)

fixed: product line industrial systems (41000), product linehousehold systems (24,000), total (65,000)

total marketing administrative exp.: product line industrialsystems (110,000), product line household systems (100,000),Total($210,000)

operating income (loss): product line industrial systems(-$24,000), product line household systems ($144,000), total$120,000

Members of the board are surprised that the industrial systemsproduct line is losing money. They commission a study to determinewhether the company should drop the line. Company accountantsestimate that dropping industrial systems will decrease fixed costof goods sold by $81,000 and decrease fixed marketing andadministrative expenses by $14,000.

1. prepare an incremental analysis to show whether Safety Stepshould drop the industrial systems product line. fill in theblanks.

Safety Step

incremental analysis of dropping a product line

expected decrease in revenues--

dropping industrial systems sales ________

expected decrease in expenses:

variable expenses:

cost of goods sold ________

marketing and administrative expenses _________

fixed expenses:

cost of goods sold _________

marketing and administrative expenses __________

expected decrease in total expenses __________

__________(expected decrease or expected increase) in operatingincome _____________

2. Prepare contribution margin income statements to show SafetyStep's total operating income under the two alternatives: (a) withthe industrial systems line and (b) without the line . Compare thedifference between the two alternatives' income numbers to youranswer to requirement 1.

3. What have you learned from the comparison in requirement2?

Your company, Apollo, operates in the manufacturing industry,with a market leading product called Rover.

This product currently brings in a quarter of the organisation’srevenue and is responsible for a third of the company’sexpenditure.

A new company has come onto the scene with an innovative productthat will dominate the market and result in the loss of all Salesof Rover.

The company’s total revenue is $1,200,000
The company’s total expenses are $1,000,000

What impact will the loss of Rover’s sales have on Apollo’srevenue forecast, expense budget, and bottom line? (100-120words)

Conch Republic Electronics is a midsized electronics manufacturerlocated in Key West, Florida. The company president is ShelleyCouts, who inherited the company. Over the years, the companyexpanded into manufacturing and is now a reputable manufacturer ofvarious electronic items. One of the major revenue-producing itemsmanufactured by Conch Republic is a smart phone. Conch Republiccurrently has one smart phone model on the market, and sales havebeen excellent. Conch republic spent $750,000 to develop aprototype for a new smart phone that has all the features of theirexisting smart phones. The company has spent a further $200,000 fora marketing study to determine the expected sales firgures for thenew smart phone. Conch republic can manufacture the new smartphones for $97 each in variable costs. Fixed costs for theoperation are estimated to run $5.3 million per year. The estimatedsales volume is 68,000, 79,000, 105,000, 83,000, and 64,000 peryear for the next five years, respectively. The unit price of thenew smart phone will be $275. The necessary equipment can bepurchased for $20.5 million and will be depreciated on a seven-yearMACRS schedule. It is believed the value of the equipment in fiveyears will be $3.5 million. Net working capital for the smartphones will be 20 percent of sales and will occur with the timingof the cash flows for the year (i.e., there is no initial outlayfor NWC). Changes in NWC will thus first occur in Year 1 with thefirst year's sales. Conch republic has a 35 percent corporate taxrate and a 12 percent required return.

A.) What is the payback period of the project?

B.) What is the Internal rate of return of the project?

C.) What is the Net present value of the project?

D.) Should Conch Republic produce the new Smart Phone?