Meredith had an excellent management science course as part of her MBA program in college, so she realizes that break-evenanalysis is needed to help make this decision. With this in mind, she instructs several staff members to investigate this prospectiveproduct further, including developing estimates of the related costs and revenues as well as forecasting the potential sales.One month later, the preliminary estimates of the relevant financial figures come back. The cost of designing the grandfather clockand then setting up the production facilities to produce this product would be approximately $250,000. There would be only oneproduction run for this limited-edition grandfather clock. The additional cost for each clock produced would be roughly $2,000.The marketing department estimates that their price for selling the clocks can be successfully set at about $4,500 apiece, but a firmforecast of how many clocks can be sold at this price has not yet been obtained. However, it is believed that the sales likely wouldreach into three digits.Meredith wants all these numbers pinned down considerably further. However, she feels that some analysis can be done now todraw preliminary conclusions.a. Assuming that all clocks produced are sold, develop a spreadsheet model for estimating the profit or loss from producing anyparticular number of clocks.

Working notes :- Break-even point = Contribution is…

Answered: later, the pre etting up the

Business

Accounting

later, the pre etting up the

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 40P: The Lockit Company manufactures door knobs for residential homes and apartments. Lockit is...

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Thus, Maria decided to pursue a quality-driven turnaround strategy. Revenue growth and cost reduction could both be achieved if quality could be improved. By growing revenues and decreasing costs, profitability could be increased. After meeting with the managers of production, marketing, purchasing, and human resources, Maria made the following decisions, effective immediately (end of November 20x1): a. More will be invested in employee training. Workers will be trained to detect quality problems and empowered to make improvements. Workers will be allowed a bonus of 10 percent of any cost savings produced by their suggested improvements. b. Two design engineers will be hired immediately, with expectations of hiring one or two more within a year. These engineers will be in charge of redesigning processes and products with the objective of improving quality. 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By reducing the defect rate to this level, marketing is confident that market share will increase by at least 50 percent (as a consequence of increased customer satisfaction). Products with better quality will help establish an improved product image and reputation, allowing the division to capture new customers and increase market share. f. Accounting will be given the charge to install a quality information reporting system. Daily reports on operational quality data (e.g., percentage of defective units), weekly updates of trend graphs (posted throughout the division), and quarterly cost reports are the types of information required. g. To help direct the improvements in quality activities, kaizen costing is to be implemented. For example, for the year 20x1, a kaizen standard of 6 percent of the selling price per unit was set for rework costs, a 25 percent reduction from the current actual cost. To ensure that the quality improvements were directed and translated into concrete financial outcomes, Maria also began to implement a Balanced Scorecard for the division. By the end of 20x2, progress was being made. Sales had increased to 26,000,000, and the kaizen improvements were meeting or beating expectations. For example, rework costs had dropped to 1,500,000. At the end of 20x3, two years after the turnaround quality strategy was implemented, Maria received the following quality cost report: Maria also received an income statement for 20x3: Maria was pleased with the outcomes. Revenues had grown, and costs had been reduced by at least as much as she had projected for the two-year period. Growth next year should be even greater as she was beginning to observe a favorable effect from the higher-quality products. Also, further quality cost reductions should materialize as incoming inspections were showing much higher-quality purchased components. Required: 1. 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