Gormley Precision Tools makes cutting tools for metalworking operations. It makes two types of tools: A6, a regular cutting tool, and EX4, a high- precision cutting tool. A6 is manufactured on a regular machine, but EX4 must be manufactured on both the regular machine and a high-precision machine. The following information is available: A6 EX4 $ 180 Selling price Variable manufacturing cost per unit Variable marketing cost per unit Budgeted total fixed overhead costs Hours required to produce one unit on the regular machine 280 2$ 110 190 20 60 $700,000 $1,100,000 1.0 0.5 Additional information includes the following: a. Gormley faces a capacity constraint on the regular machine of 50,000 hours per year. b. The capacity of the high-precision machine is not a constraint. c. Of the $1,100,000 budgeted fixed overhead costs of EX4, $600,000 are lease payments for the high- precision machine. This cost is charged entirely to EX4 because Gormley uses the machine exclusively to produce EX4. The company can cancel the lease agreement for the high-precision machine at any time without penalties. d. All other overhead costs are fixed and cannot be changed.
Gormley Precision Tools makes cutting tools for metalworking operations. It makes two types of tools: A6, a regular cutting tool, and EX4, a high- precision cutting tool. A6 is manufactured on a regular machine, but EX4 must be manufactured on both the regular machine and a high-precision machine. The following information is available: A6 EX4 $ 180 Selling price Variable manufacturing cost per unit Variable marketing cost per unit Budgeted total fixed overhead costs Hours required to produce one unit on the regular machine 280 2$ 110 190 20 60 $700,000 $1,100,000 1.0 0.5 Additional information includes the following: a. Gormley faces a capacity constraint on the regular machine of 50,000 hours per year. b. The capacity of the high-precision machine is not a constraint. c. Of the $1,100,000 budgeted fixed overhead costs of EX4, $600,000 are lease payments for the high- precision machine. This cost is charged entirely to EX4 because Gormley uses the machine exclusively to produce EX4. The company can cancel the lease agreement for the high-precision machine at any time without penalties. d. All other overhead costs are fixed and cannot be changed.
Chapter6: Activity-based, Variable, And Absorption Costing
Section: Chapter Questions
Problem 9PA: Carltons Kitchens makes two types of pasta makers: Strands and Shapes. The company expects to...
Related questions
Question
Suppose Gormley can increase the annual capacity of its regular machines by 15,000 machine-hours at a cost of $300,000. Should Gormley increase the capacity of the regular machines by 15,000 machinehours? By how much will Gormley’s operating income increase or decrease? Show your calculations
Transcribed Image Text:Gormley Precision Tools makes cutting
tools for metalworking operations. It makes two types of tools: A6, a regular cutting tool, and EX4, a high-
precision cutting tool. A6 is manufactured on a regular machine, but EX4 must be manufactured on both the
regular machine and a high-precision machine. The following information is available:
A6
EX4
$ 180
Selling price
Variable manufacturing cost per unit
Variable marketing cost per unit
Budgeted total fixed overhead costs
Hours required to produce one unit on the regular machine
280
2$
110
190
20
60
$700,000
$1,100,000
1.0
0.5
Additional information includes the following:
a. Gormley faces a capacity constraint on the regular machine of 50,000 hours per year.
b. The capacity of the high-precision machine is not a constraint.
c. Of the $1,100,000 budgeted fixed overhead costs of EX4, $600,000 are lease payments for the high-
precision machine. This cost is charged entirely to EX4 because Gormley uses the machine exclusively
to produce EX4. The company can cancel the lease agreement for the high-precision machine at any
time without penalties.
d. All other overhead costs are fixed and cannot be changed.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub