HOMEWORK2 Essay

5. Fixed costs can be discretionary or committed. Using your judgment based on the discussion in the case, identify which costs are likely to be discretionary. Assuming that management is able to decrease discretionary fixed costs by 10%, what would be the impact on Bridgestone’s break-even point revenues?

The calculation has proven that contribution margin of Model S is higher than Model LX. In conclusion, all resources should be allocated to produce Model S up to its maximum production capacity.

1. a. The simulation indicates that 584 is the optimum stocking quantity. Daily profit at this stocking quantity is $331.4346.

10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Assume that next year management wants the company to earn a minimum profit of $162,000. How many units be sold to meet this target profit figure? [3 points]

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

If Marlene Herbert were to discontinue place mats, he would miss $270,000 that will go toward Mendel paper company fixed cost. The company currently has a plant overhead that is estimated at $420,000 for the quarter. In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000. This draws the company to a total fixed cost of $538,000. If Marlene Herbert were to discontinue the second highest contributor to the fixed cost, he would need to increase the volume of computer paper and lower material cost to help pull the contribution margin of the lowest product up to help support the lost of a whole product line.

c) Explain how the location of each curve graphed in question 7b would be altered if (1) total fixed cost had been $100 rather than $60 and (2) total variable cost had been $10

d. How much overhead cost do you think Bridgeton and the consultants implicitly assumed they would save by outsourcing these two products?

(d) What will Yabba’s market share have to be for it to generate a profit of $700,000?

Peter’s Peripherals assembles multimedia upgrade kits --- sets of components for adding sound and video to desktop computers. The demand for their kits for the next four quarters is estimated in the table below. Unit manufacturing cost for each kit is $160. Holding costs on each kit is $80 per quarter. Any kit that must be delivered late is assessed a backorder cost of $120. Each worker is capable of finishing 10 kits per quarter. If the company chooses to vary work force levels, it will incur costs of $400 for each additional worker; $600 for each termination. The company currently has 28 employees.

The $320,000, on the other hand, is a fixed cost associated with the proposed addition.

a. Assuming the most current operational cost levels, what sales must it generate to recoup the above investment?

Fixed costs are those which do not change with the level of activity within the relevant range. These costs will incur even if no units are produced. For example rent expense, straight-line depreciation expense, etc.

➢ Fixed costs - with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing market competition.