Required information [The following information applies to the questions displayed below.] Intercontinental's special order requires 1,400 kilograms of genatope, a solid chemical regularly used in the company's products. The current stock of genatope is 9,600 kilograms at a book value of 8.40 p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 9.00 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 8.60 p when normal restocking takes place. Any order of genatope must be in the amount of 5,000 kilograms. Required: 1. What is the relevant cost of genatope? (Enter your answer in pesos.) Total relevant cost

Required information [The following information applies to the questions displayed below.] Intercontinental's special order requires 1,400 kilograms of genatope, a solid chemical regularly used in the company's products. The current stock of genatope is 9,600 kilograms at a book value of 8.40 p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 9.00 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 8.60 p when normal restocking takes place. Any order of genatope must be in the amount of 5,000 kilograms. Required: 1. What is the relevant cost of genatope? (Enter your answer in pesos.) Total relevant cost

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 7E: Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The...

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One of the bulk raw beverages, which Blanchard buys, is gin. Assume that the cost of purchasing enough raw gin for one case is $100. Each time they place an order their cost for processing the order is $20. The annual holding cost is 33% of item cost and demand for gin is 2500 cases per year. Calculate the EOQ for this product. If the lead-time is one day, what is the reorder point ROP? What is the annual total cost of this strategy? What is the average inventory? What is the inventory turnover? Please do fast ASAP fast
Moona Inc.,is preparing a bid for a special order that would require 880 liters of material B101. The company already has 280 liters of this raw material in stock that originally cost $6.10 per liter. Material B101 is used in the company's main product and is replenished on a periodic basis. The resale value of the existing stock of the material is $5.45 per liter. New stocks of the material can be readily purchased for $6.20 per liter. What is the relevant cost of the 880 liters of the raw material when deciding how much to bid on the special order?
Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?
Sell or process further Dakota Coffee Company produces Columbian coffee in batches of 7,500 pounds. The standard quantity of materials required in the process is 7,500 pounds, which cost 6.00 per pound. Columbian coffee can be sold without further processing for 9.80 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for 11.60 per pound. The processing into Decaf Columbian requires additional processing costs of 6,300 per batch. The additional processing will also cause a 5% loss of product due to evaporation. a. Prepare a differential analysis dated December 11 on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2). b. Should Dakota Coffee Company sell Columbian coffee or process further and sell Decaf Columbian? Explain. c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian.
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the economic order quantity. 2. Compute the ordering, carrying, and total costs for the EOQ. 3. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?
Briquette Corporation has in stock 35,800 kilograms of material L that it bought five years ago for $5.55 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material L can be sold as is for scrap for $1.67 per kilogram. An alternative would be to use material L in one of the company's current products, Q08C, which currently requires 2 kilograms of a raw material that is available for $9.15 per kilogram. Material L can be modified at a cost of $0.78 per kilogram so that it can be used as a substitute for this material in the production of product Q08C. However, after modification, 4 kilograms of material L is required for every unit of product Q08C that is produced. Briquette Corporation has now received a request from a company that could use material L in its production process. Assuming that Briquette Corporation could use all of its stock of material L to make product Q08C or the company could sell all of its stock of the material at…
Briquette Corporation has in stock 35,800 kilograms of material L that it bought five years ago for $5.55 per kilogram. This raw material was purchased to use in a product line that has been discontinued. Material L can be sold as is for scrap for $1.67 per kilogram. An alternative would be to use material L in one of the company's current products, Q08C, which currently requires 2 kilograms of a raw material that is available for $9.15 per kilogram. Material L can be modified at a cost of $0.78 per kilogram so that it can be used as a substitute for this material in the production of product Q08C. However, after modification, 4 kilograms of material L is required for every unit of product Q08C that is produced. Briquette Corporation has now received a request from a company that could use material L in its production process. Assuming that Briquette Corporation could use all of its stock of material L to make product Q08C or the company could sell all of its stock of the material at…
Park corporation is preparing a bid for a special order that would require 760 liters of materials SUN100. The company already has 580 liters of this raw material in stock that originally cost $6.70 per liter. Material SUN100 is used in the company's main product and is replenished on a periodic basis. The resale value of the existing stock of the material is $6.00 per liter. New stocks of the material can be readily purchased for $7.05 per liter. What is the relevant cost of the 760 liters of the raw material when deciding how much to bid on the special order? (CIMA adapted) $5,155 $5,358 $4,966 $4,560
Scherer Corporation is preparing a bid for a special order that would require 720 liters of material U48N. The company already has 560 liters of this raw material in stock that originally cost $6.30 per liter. Material U48N is used in the company's main product and is replenished on a periodic basis. The resale value of the existing stock of the material is $5.80 per liter. New stocks of the material can be readily purchased for $6.65 per liter. What is the relevant cost of the 720 liters of the raw material when deciding how much to bid on the special order? Select one: a. $4,592 b. $4,788 c. $4,456 d. $4,176
Assume that Palmer Executive Pens uses 1,440,000 gallons of ink each year. Further, assume that Palmer can order the ink at a cost of $2 per gallon plus fixed ordering costs of $100 per order. The firm's carrying cost is 20% of the inventory value, at cost. What is Palmer’s minimum costs of ordering and holding inventory? a.$ 6,254 b.$10,733 c.$11,560 d.$13,563 e.$19,825 SHOW THE ANSWER AND COMPLETE SOLUTION IN A GOOD ACCOUNTING FORM
Sugar Sweet (SS) Company produces and sells 7,000 specialty Treats per year at a sellingprice of $850 each. Its current production equipment, purchased for $1,850,000 and with afive-year useful life, is only two years old. It has a terminal disposal value of $0 and isdepreciated on a straight-line basis. The equipment has a current disposal price of $500,000.However, the emergence of a new technology has led SS to consider either upgrading orreplacing the production equipment. The following table presents data for the twoalternatives: A B C1 Choice Upgrade Replace2 One-time equipment costs $3,000,000 $4,800,0003 Variable manufacturing cost per Treat $150 $704 Remaining useful…
Sugar Sweet (SS) Company produces and sells 7,000 specialty Treats per year at a sellingprice of $850 each. Its current production equipment, purchased for $1,850,000 and with afive-year useful life, is only two years old. It has a terminal disposal value of $0 and isdepreciated on a straight-line basis. The equipment has a current disposal price of $500,000.However, the emergence of a new technology has led SS to consider either upgrading orreplacing the production equipment. The following table presents data for the twoalternatives: A B C1 Choice Upgrade Replace2 One-time equipment costs $3,000,000 $4,800,0003 Variable manufacturing cost per Treat $150 $704 Remaining useful life of equipment (years) 3 35 Terminal disposal value of equipment 0 0 Required 4. Assume that all data are as given in the original exercise. Nick Son is SS’s manager, andhis bonus is based on operating income. Because he is likely to relocate after about a year, hiscurrent bonus is his primary concern. Which…