Rachel Wilson owns Campus Copies. a copy business with several high-speed copy machines One is a colour copier that was purchased just last year at a cost of 226.000. Recently a salesperson get Rache to witness a demo of a new 24.000 colour copier that promises higher speed and more accurate colour representation Rachel is interested but she can't get herself to trade in a perfectly good copier for which she paid 226.000 and replace it with one that will cost 24.000 Write a paragraph explaining why the cost of the old copier is irrelevant to Rachel's decision
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- 1. Garrison Boutique, a small novelty store, just spent $4,000 on a new software program that will help in organizing its inventory. Due to the steep learning curve required to use the new software, Garrison must decide between hiring two part-time college students or one full-time employee. Each college student would work 20 hours per week, and would earn $15 per hour. The full-time employee would work 40 hours per week and would earn $15 per hour plus the equivalent of $2 per hour in benefits. Employees are given two polo shirts to wear as their uniform. The polo-shirts cost Garrison $10 each. Software, $4,000 None Shirts, $20 Shirts, $10 Benefits, $80 Benefits, $2 What are the relevant costs, relevant revenues, sunk costs, and opportunity costs for Garrison? PLEASE NOTE: For categories with multiple items from the list above, you will list them in the order in which they are presented in the problem and for the proper dollar amount. Categories: First Item Second Item…Whitmore Glassware makes a variety of drinking glasses and mugs. The company’s designers have discovered a market for a 16 ounce mug with college logos. Market research indicates that a mug like this would sell well in the market priced at $26.65. Whitmore only introduces a product if they can an operating profit of 30 percent of costs. Required: What is the highest acceptable manufacturing cost for which Whitmore would be willing to produce the mugs? (Round your answer to 2 decimal places.)Keith Golding has decided to purchase a personal computer. He has narrowed his choices to two: Brand A and Brand B. Both brands have the same processing speed, hard disk capacity, RAM, graphics card memory, and basic software support package. Both come from companies with good reputations. The selling price for each is identical. After some review, Keith discovers that the cost of operating and maintaining Brand A over a three-year period is estimated to be 200. For Brand B, the operating and maintenance cost is 600. The sales agent for Brand A emphasized the lower operating and maintenance cost. She claimed that it was lower than any other PC brand. The sales agent for Brand B, however, emphasized the service reputation of the product. She provided Keith with a copy of an article appearing in a PC magazine that rated service performance of various PC brands. Brand B was rated number one. Based on all the information, Keith decided to buy Brand B. Required: 1. What is the total product purchased by Keith? 2. Is the Brand A company pursuing a cost leadership or differentiation strategy? The Brand B company? Explain. 3. When asked why he purchased Brand B, Keith replied, I think Brand B offered more value than Brand A. What are the possible sources of this greater value? If Keiths reaction represents the majority opinion, what suggestions could you offer to help improve the strategic position of Brand A?
- Garrison Boutique, a small novelty store, just spent $4,000 on a new software program that will help in organizing its inventory. Due to the steep learning curve required to use the new software, Garrison must decide between hiring two part-time college students or one full-time employee. Each college student would work 20 hours per week, and would earn $1 S per hour. The full-time employee would work 40 hours per week and would earn $15 per hour plus the equivalent of $2 per hour in benefits. Employees are given two polo shirts to wear as their uniform. The polo-shirts cost Garrison $10 each. What are the relevant costs, relevant revenues, sunk costs, and opportunity costs for Garrison?Ethical Behavior Consider the following scenario between Dave, a printer, and Steve, an assistant in the local universitys athletic department. Steve: Dave, our department needs to have 10,000 posters printed for the basketball team for next year. Heres the mock-up, and well need them in a month. How much will you charge? Dave: Well, given the costs I have for ink and paper, 1 can come in at around 5,000. Steve: Great, heres what I want you to do. Print me up an invoice for 7,500. Huts our budget. Then, when they pay you, you give me a check for 2,500. Ill make sure that you get the job. Required: CONCEPTUAL CONNECTION Is Steves proposal ethical? What should Dave do?Ac Gems in the Rough, a jewelry company, the engraving department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $56,000 per year, to ease the problem. Using the extra worker, the company will be able to engrave 8,000 more units per year. The selling price per unit is $16. The cost per unit currently is $11.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?
- Quality Clothing, Inc., produces skorts and jumper uniforms for schoolchildren. In the process of cutting out the cloth pieces for each product, a certain amount of scrap cloth is produced. Quality has been selling this cloth scrap to Jorges Scrap Warehouse for $3.25 per pound. Last year, the company sold 40,000 lb. of scrap, which would be enough to make 10,000 teddy bears that the management of Quality is now interested in producing. Their processes would need some reprogramming, particularly in the cutting and stitching processes, but it would require no additional worker training. However, new packaging would be needed. The total variable cost to produce the teddy bears $3.85. Fixed costs would increase by $95,000 per year for the lease of the packaging equipment and Quality estimates it could produce and sell 10,000 teddy bears per year. Finished teddy bears could be sold for $18.00 each. Should Quality continue to sell the scrap cloth or should Quality process the scrap into teddy bears to sell?The Expenditure Approval Process Roberto is the plant superintendent of a small manufacturing company that is owned by a large corporation. The corporation has a policy that any expenditure over $1,000 must be approved by the chief financial officer in the corporate headquarters. The approval process takes a minimum of three weeks. Roberto would like to order a new labeling machine that is expected to reduce costs and pay for itself in six months. The machine costs $2,200, but Roberto can buy the sales reps demo for $1,800. Roberto has asked the sales rep to send two separate bills for $900 each. What would you do if you were the sales rep? Do you agree or disagree with Robertos actions? What do you think about the corporate policy?Mortech makes digital cameras for drones. Their basic digital camera uses $80 in variable costs and requires $1,500 per month in fixed costs. Mortech sells 200 cameras per month. If they process the camera further to enhance its functionality, it will require an additional $45 per unit of variable costs, plus an increase in fixed costs of $1,000 per month. The current price of the camera is $200. The marketing manager is positive that they can sell more and charge a higher price for the improved version. At what price level would the upgraded camera begin to improve operational earnings?
- Gaston Company manufactures furniture. One of its product lines is an economy-line kitchen table. During the last year, Gaston produced and sold 100,000 units for 100 per unit. Sales of the table are on a bid basis, but Gaston has always been able to win sufficient bids using the 100 price. This year, however, Gaston was losing more than its share of bids. Concerned, Larry Franklin, owner and president of the company, called a meeting of his executive committee (Megan Johnson, marketing manager; Fred Davis, quality manager; Kevin Jones, production manager; and Helen Jackson, controller). LARRY: I dont understand why were losing bids. Megan, do you have an explanation? MEGAN: Yes, as a matter of fact. Two competitors have lowered their price to 92 per unit. Thats too big a difference for most of our buyers to ignore. If we want to keep selling our 100,000 units per year, we will need to lower our price to 92. Otherwise, our sales will drop to about 20,000 to 25,000 per year. HELEN: The unit contribution margin on the table is 10. Lowering the price to 92 will cost us 8 per unit. Based on a sales volume of 100,000, wed make 200,000 in contribution margin. If we keep the price at 100, our contribution margin would be 200,000 to 250,000. If we have to lose, lets just take the lower market share. Its better than lowering our prices. MEGAN: Perhaps. But the same thing could happen to some of our other product lines. My sources tell me that these two companies are on the tail end of a major quality improvement programone that allows them significant savings. We need to rethink our whole competitive strategyat least if we want to stay in business. Ideally, we should match the price reduction and work to reduce the costs to recapture the lost contribution margin. FRED: I think I have something to offer. We are about to embark on a new quality improvement program of our own. I have brought the following estimates of the current quality costs for this economy line. As you can see, these costs run about 16 percent of current sales. Thats excessive, and we believe that they can be reduced to about 4 percent of sales over time. LARRY: This sounds good. Fred, how long will it take for you to achieve this reduction? FRED: All these costs vary with sales level, so Ill express their reduction rate in those terms. Our best guess is that we can reduce these costs by about 1 percent of sales per quarter. So it should take about 12 quarters, or three years, to achieve the full benefit. Keep in mind that this is with an improvement in quality. MEGAN: This offers us some hope. If we meet the price immediately, we can maintain our market share. Furthermore, if we can ever reach the point of reducing the price below the 92 level, then we can increase our market share. I estimate that we can increase sales by about 10,000 units for every 1 of price reduction beyond the 92 level. Kevin, how much extra capacity for this line do we have? KEVIN: We can handle an extra 30,000 or 40,000 tables per year. Required: 1. Assume that Gaston immediately reduces the bid price to 92. How long will it be before the unit contribution margin is restored to 10, assuming that quality costs are reduced as expected and that sales are maintained at 100,000 units per year (25,000 per quarter)? 2. Assume that Gaston holds the price at 92 until the 4 percent target is achieved. At this new level of quality costs, should the price be reduced? If so, by how much should the price be reduced, and what is the increase in contribution margin? Assume that price can be reduced only in 1 increments. 3. Assume that Gaston immediately reduces the price to 92 and begins the quality improvement program. Now, suppose that Gaston does not wait until the end of the three-year period before reducing prices. Instead, prices will be reduced when profitable to do so. Assume that prices can be reduced only by 1 increments. Identify when the first future price change should occur (if any). 4. Discuss the differences in viewpoints concerning the decision to decrease prices and the short-run contribution margin analysis done by Helen, the controller. Did quality cost information play an important role in the strategic decision making illustrated by the problem?Quality Cleaners specializes in cleaning apartment units and off Quality Cleaners specializes in cleaning apartment units and office buildings. Although the work is not too enjoyable, Joe Boyett has been able to realize a considerable profit in the Chicago area. Joe is now thinking about opening another Quality Cleaners in Milwaukee. To break even, Joe would need to get 200 cleaning jobs per year. For every job under 200, Joe will lose $80. Joe estimates that the average sales in Milwaukee are 350 jobs per year, with a standard deviation of 150 jobs. A market research team has approached Joe with a proposition to perform a marketing study on the potential for his cleaning business in Milwaukee. What is the most that Joe would be willing to pay for the market research? Quality Cleaners specializes in cleaning apartment units and offIn keeping with the increasingly popular merchandising theme of customization an entrepreneurial engineer started a business making customized bobblehead dolls. He entered into a contract with Binkely Toys, Inc. the maker of the dolls to purchase bobbleheads in lots of 250 for $2500. If the engineers initial investment was $59,000 and his profit was $37.000 in year 1 and $47.000 in year 2. his rate of return was closest to Select one: a 18% b. 21% c 20 d. 32%