TAKE HOME QUIZ
(7-11 April 2013)
CHAPTER: PROCESSES AND CAPACITIES
Multiple Choice Questions
1. A firm’s process strategy defines all of the following except its
a. capital intensity
b. process flexibility
c. vertical integration
d. horizontal integration
2. The extent to which the firm will produce the inputs and control the outputs of each stage of the production process is known as
a. vertical integration
b. process flexibility
c. horizontal integration
d. capital intensity
3. The organization’s overall approach for physically producing goods and providing services is known as its
a. level of capital intensity
b. level of process flexibility
c. process strategy
d. level of customer involvement
4. The
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As production systems move from projects to batch production to mass production to continuous production
a. demand volume increases
b. products become more customized
c. production systems become less automated
d. production systems become more flexible
21. As production systems move from projects to batch production to mass production to continuous production
a. demand volumes decrease
b. products become more customized
c. processes become less flexible
d. customer involvement with the process increases
22. A company is considering producing a product for a new market. The fixed costs required for manufacturing and delivering the product is $50,000. Labor and material costs are estimated to be approximately $25.00 per product. If the product is sold for $35.00 each, the firm’s break-even volume would be
a. 50,000 units
b. 5,000 units
c. 2500 units
d. 500 units
23. If a firm can sell a product for $40.00 each, then what is the volume needed to break-even if the fixed cost of production is $125,000.00 and labor and material costs are $30.00 per item?
a. 125,000
b. 12,500
c. 4,167
d. 3,250
24. A company is evaluating which of two alternatives should be used to produce a product that will sell for $35.00 per unit. The following cost information describes the two alternatives
Process A
Process B
Fixed Cost
$500,000
$750,000
Variable Cost per Unit
$25.00
$23.00
The break-even volume for Process A is
a. 50,000 units
b. 62,500
1- The total unit cost = Total Variable Cost + Production Fixed Expenses + Advertising Expense + Selling and Administrative Expense = 3.23 + 1.20 + 0.30 + 0.19 = 4.92.
Production: We will significantly increase automation levels on our products. However, because automation sets limits upon our ability to reposition products with R&D, we will postpone automation for the High End and Size products until they arrive in the Traditional Segment. We will prefer second shift/overtime to capacity expansions.
Determine the unit break-even point, assuming fixed costs are $60,000 per period, variable costs are $16.00 per unit, and the sales price is $25.00 per unit.
To find the break-even point for napkins, you use the same formula. The fixed cost is still $420,000.00. The selling price of napkins is $7.00. The variable cost is $4.50. $7.00 minus $4.50 is $2.50. So then you take $420,000.00 and divide it by $2.50 to find the breaking point of $168,000.00. The company will have to sell $168,000.00 to break even in sales. The margin for safety for napkins is -$48,000.00. This is found by subtracting the actual or expected cost of $120,000.00 by the break-even point of $168,000.00. You can cut sales by $48,000.00 and not sustain a loss.
3. Market research estimates that monthly equipment production could be increased to 3,500 units which is well within production capacity limitations, if the price were cut from $1,580 to $1,400 per unit. Assuming the cost behavior patterns implied by the data in Exhibit 1 are correct, would you recommend that this action be taken? What would be the impact on monthly sales, costs, and income?
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.
PROBLEM 5-1. Variable and Full Costing: Sales Constant but Production Fluctuates [LO 1, 2, 3, 5] Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows: 2011 Units sold Units produced Fixed production costs Variable production costs per unit Selling price per unit 15,000 15,000 $750,000 $ 150 $ 250 2012 15,000 20,000 $750,000 $ 150 $ 250 $220,000 2013 15,000 10,000 $750,000 $ 150 $ 250 $220,000 Total 45,000 45,000
The variable cost per unit is $25 and the revenue per unit is projected to be $45. Find the break-even point.Answer
Hannon Company expects to produce 1,200,000 units of Product XX in 2010. Monthly production is expected to range from 80,000 to 120,000 units. Budgeted variable manufacturing costs per unit are: direct materials $4, direct labor $6, and overhead $8. Budgeted fixed manufacturing costs per unit for depreciation are $2 and for supervision are $1. Complete the flexible manufacturing budget for the relevant range value using 20,000 unit increments.
In recent years, the requirements of commercial and industrial operations in the production of services and goods have been subject to vast changes. In the present era of globalization and increasing international competition, a trend away from vertically integrated organizations has become more and more evident. In fact, most companies nowadays tend to solely concentrate on their own core competencies, outsourcing different steps of the production. However, including a great many of other organizational units to the production systems, has lead to rising complexity in terms of the operations management (Plenert, 2012).
The Alpha Division of the Carlson Company manufactures product X at a variable cost of $40 per unit. Alpha Division 's fixed costs, which are sunk, are $20 per unit. The market price of X is $70 per unit. Beta Division of Carlson Company uses product X to make Y. The
4. Evergreen Fertilizer Company produces fertilizer. The company’s fixed monthly cost is $25,000, and its variable cost per pound of fertilizer is $0.15. Evergreen sells the fertilizer for $0.40 per pound. Determine the monthly break-even volume for the
Question B: How many units per year must be sold with each process to have annual profits of $50,000 if the selling price is $6.95 per unit?
We want to know the amount aluminum cans account for in the cost of sales. According to the provided information cans account for 60% of net revenues. Net revenue in 1994 will be $231,207 * 1.04 = $240,455. The cans contribute 0,60 * $240,455 = $144,273. With a gross margin on cans of 27% the cost of sales of aluminum cans for 1994 is