Manufacturing cycle times, relevant revenues, and relevant costs. The DJ Corporation makes custom specied wire harnesses for the trucking industry only upon receiving rm orders from its customers. DJ has recently purchased a new machine to make two types of wire harnesses, one for Peterbilt and the other for Kenworth. The annual capacity of the new machine is 5,000 hours. The following information is available for next year: AnnualAverageNumber ofOrdersSelling Price per Order IfAverage ManufacturingCycle Time per Order IsLess ThanVariableCost perOrderInventoryCarryingCostper Orderper HourMore Than200 HoursManufacturingTime Required40 hours50 hoursCustomer200 HoursPeterbilt10010$14,000$13,40011,960$9,000$0.500.45Kenworth12,5008,0001. Calculate the average manufacturing cycle times per order (a) if DJ manufactures only Peterbilt and (b)if DJ manufactures both Peterbilt and Kenworth.2. Even though Kenworth has a positive contribution margin, DJ's managers are evaluating whether DJshould (a) make and sell only Peterbilt or (b) make and sell both Peterbilt and Kenworth. Which alterna-tive will maximize DJ's operating income? Show your calculations.3. What other factors should DJ consider in choosing between the alternatives in requirement 2?Required

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Manufacturing cycle times, relevant revenues, and relevant costs. The DJ Corporation makes custom specied wire harnesses for the trucking industry only upon receiving rm orders from its customers. DJ has recently purchased a new machine to make two types of wire harnesses, one for Peterbilt and the other for Kenworth. The annual capacity of the new machine is 5,000 hours. The following information is available for next year:

Annual
Average
Number of
Orders
Selling Price per Order If
Average Manufacturing
Cycle Time per Order Is
Less Than
Variable
Cost per
Order
Inventory
Carrying
Cost
per Order
per Hour
More Than
200 Hours
Manufacturing
Time Required
40 hours
50 hours
Customer
200 Hours
Peterbilt
100
10
$14,000
$13,400
11,960
$9,000
$0.50
0.45
Kenworth
12,500
8,000
1. Calculate the average manufacturing cycle times per order (a) if DJ manufactures only Peterbilt and (b)
if DJ manufactures both Peterbilt and Kenworth.
2. Even though Kenworth has a positive contribution margin, DJ's managers are evaluating whether DJ
should (a) make and sell only Peterbilt or (b) make and sell both Peterbilt and Kenworth. Which alterna-
tive will maximize DJ's operating income? Show your calculations.
3. What other factors should DJ consider in choosing between the alternatives in requirement 2?
Required

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