The base case for Grandmother’s Chicken Restaurant (see Example 4.2) is to do nothing. The capacity ofthe kitchen in the base case is 80,000 meals per year. A capacity alternative for Grandmother’s ChickenRestaurant is a two-stage expansion. This alternative expands the kitchen at the end of year 0, raising itscapacity from 80,000 meals per year to that of the dining area (105,000 meals per year). If sales in year 1and 2 live up to expectations, the capacities of both the kitchen and the dining room will be expandedat the end of year 3 to 130,000 meals per year. This upgraded capacity level should suffice up throughyear 5. The initial investment would be $80,000 at the end of year 0 and an additional investment of $170,000 at the end of year 3. The pretax profit is $2 per meal. What are the pretax cash flows for this al-ternative through year 5, compared with the base case?
Q: A sole proprietor borrows 1000 and uses 85% of the proceeds to buy business supplies and the rest to...
A: Sole proprietorship indicates the business established by the sole owner where the owner and its bus...
Q: 4. Eng Tat is a manufacturer. His trial balance as at 31 December 2020 is as follows: Particulars Cr...
A: Income statement is a statement prepared to calculate the net income of a company after deducting ex...
Q: 1) Which of these 4 sheets would be the LAST to be completed in the accounting cycle. 1.Aft...
A: Accounting cycle: It is a process of recording financial information in a systematic format. This pr...
Q: What is the relationship between profit and ethics?
A: Meaning of profit and ethics: Ethics is the kind of nature and one good attribute of a person that...
Q: Please let me the answer to these questions. Thanks
A: Variable cost means the cost which vary with the level of output where as fixed cost remain fixed wh...
Q: a) Kareem & Sons last year reported sales of 12 million and an inventory turnover ratio of 4. Th...
A: Answer b: Average amount of receivables=Sales×DSO360=$5,500×19360=$290.28
Q: mcqs: 1) Spang Corporation uses a job-order costing system with a single plantwide predetermined ...
A: Job order costing is the costing system which includes the jobs as per customer preferences. The cos...
Q: Altaf Corporation had Rs. 45,000 of raw materials on hand on May 1. During the month, the Corporatio...
A: Raw material means the material which is used in production of finished goods. Raw material can be c...
Q: Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a w...
A: Answer 1: Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit...
Q: Kimball Company has developed the following cost formulas: Material usage: Ym = $80X; r = 0.95 Labor...
A: Following is the answer to given question
Q: mcqs: 1) Neelon Corporation has two divisions: Southern Division and Northern Division. The followin...
A: “Since you have asked multiple questions, we will solve the first question for you. If you want any ...
Q: The accounting firm of JN Corporation has been studying the sales requirements of the Shayan Bottlin...
A: Break even point is where sales equal to variable and fixed cost.
Q: You are also expected to explain the silent features of these 3 methods? Asset-Based Valuation: Earn...
A: Asset-based valuation is a form of valuation in business that focuses on the value of a company's as...
Q: Software development costs are capitalized if they are incurred: Select one: a. None of the other an...
A: Software Development Cost : The software Development Cost involves the recognition of internally-de...
Q: The following unadjusted trial balance is for Ace Construction Co. as of the end of its 2019 fiscal ...
A: Journal Entries are primary record maintained by an entity for the occurrence or non-occurrence of a...
Q: hello, I need help please
A: Introduction: Bank Reconciliation statement: Its a statement prepared by the customer of the bank to...
Q: 1 (a) Time Bomb Traders Inc. in Burnaby just received an invoice dated February 17 (of a leap year) ...
A: Since you have asked multiple questions, we will solve first question for you. If you want any speci...
Q: Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Livingston Corporation, a w...
A: The price of the bond today is calculated by adding the present value of the face amount and the pre...
Q: 7) What source document is used to record adjustments to the general journal at the end of the fisca...
A: Source Documents are evidence of transactions. It authenticates the amount and nature of transaction...
Q: Please solve this Question No. 3 CVP – Applied: Revising Sales IncentivesData concerning Wislocki Co...
A: Meaning of Net Operating Income Net Operating income is one of the measures of profitability of a bu...
Q: 3. The following information is taking from Wei Min Enterprise for the year ended 31 December 2020: ...
A: Notes : (1) Calculation of Cost of finished goods sold : (2) An explanation is given below in ...
Q: Hickingbottom Corporation has two production departments, Forming and Finishing. The company uses a ...
A: Overheads can be defined as the direct or indirect expenses being incurred upon the production or ma...
Q: A CPA may receive a commission for recommending a particular computer system to an audit client. Tru...
A: As per AICPA Code of professional conduct a violation has been occurred if a CPA receives any commis...
Q: 19) Suppose the business purchased a new piece of equipment for a value of $36,000, on January 1, 20...
A: Depreciation: Due to usage, passes of time, obsolete, and accident reduction in the value of fixed a...
Q: Calculate Break-Even Point sales, when total sales, total variable costs and fixed costs are 300,000...
A: Given: The break event point for sales is calculated as total sales, total variable cost and fixed c...
Q: Which of the following accounts would be a period cost rather than a product cost? Freight o...
A: Cost: It can be defined as the total amount that is spent by a business in manufacturing a product
Q: Ibrahim Corporation has the following estimated costs for the year: Direct Materials ...
A: Pre-Determined Overhead Rate: Manufacturing overheads are those costs that are incurred indirectly d...
Q: 4) Suppose that our business uses a monthly fiscal period. On March 1, 2020, we paid 6 months of ren...
A: In terms of general meaning, it is the amount paid by the user or tenant to the owner for the use of...
Q: The management of XYZ Beverage Company is considering to purchase a new equipment to increase the pr...
A: In calculation of payback period we take Actual/initial cost of machinery and not running cost of ma...
Q: The Filling Department of Eve Cosmetics Company had 3,600 ounces in beginning work in process invent...
A: Calculation: Total equivalent units=(3,600×10%)+59,700+(3,000×10%)=360+59,700+300=60,360 ounces
Q: Shirrell Blackthorn is the accountant for several pizza restaurants based in a tri-city area. The pr...
A: The amount incurred in production of various goods and services by a business in a financial year is...
Q: On January 12019, Aquarius Co. sold a machine with a cost of P500,000 for P800,000The buyer paid a d...
A: Gain on the sale of the machine is calculated by deducting the cost of the machine from the present ...
Q: McClain Company incurred the following expenditures during 2019: Apr. 9 The air conditioning sy...
A: The journal entries that shall be recorded in the books of account of Mclain company are enumerated ...
Q: 2. The following information taken from Jejai Limited: Particulars Debit Credit RM RM Purchase of ra...
A: Jejal Limited's Additional information are as follows : 1. Ending inventory balance on 31.12.2020 ar...
Q: International Industries sells on terms of 3/10, net 50. Gross sales last year were 5,662,500 and ac...
A: Given, Discount Terms are 3/10, net 30 That implies, for a payment which is made before 10 days a di...
Q: After some large companies were caught lying on their profit reports. tightened it's regulation of t...
A: Stock market is place where the listed companies or companies who are registered on stock market can...
Q: (Process Costing) The following info...
A: Equivalents units for production: The activity of a processing department in terms of fully complet...
Q: What is the asset-liability time mismatch that all banks face?
A: Assets: Assets are those items that provide value for money and future economic benefit for an orga...
Q: he communications between CPAs and their clients are privileged under federal law. True or False
A: Auditing means the inspection of financial accounts of the company to determine if the records are a...
Q: Beans Corporation uses a job-order costing system with a single plantwide predetermined overhead rat...
A: Job costing is the method of costing which is used in job order industries where production is carri...
Q: Halbur Corporation has two manufacturing departments--Machining and Customizing. The company used th...
A: Manufacturing cost is the cost of manufacturing a commodity in a factory or in a manufacturing unit....
Q: How should the security for the database be different than security for the rest of the system? Does...
A: Database security can be defined as the measures used for protecting and securing a database or data...
Q: Deloria Corporation has two production departments, Forming and Assembly. The company uses a job-ord...
A: Selling price is the price at which a commodity is sold and it includes the cost incurred to make th...
Q: A married couple made the following tax payments in 2020. Property tax on real estate $7,000State sa...
A: Standard Deduction in 2020 : If married couple filling separate return then standard deduction is $...
Q: April 4, 2020 Smith and West, who uses the Perpetual inventory system, purchased 1000 widgets from A...
A: Journal entries refer to the recording of transactions in an appropriate way. With the help of journ...
Q: The Alpha Beta Company is attempting to establish a current assets policy. Fixed assets are $700,000...
A:
Q: The following information has been taken from the Ledger of Numan Corporation for the year ended on ...
A: Conversion costs are those costs which are to convert the raw material into finished goods. Conversi...
Q: op-Value Corporation has 256,500 shares of $35 par common stock outstanding. On September 2, Top-Val...
A: Journal: It is the first step of recording financial transactions. It is used to prepare the financ...
Q: 6. “If It Ain’t Broke” Orthopedics is leasing a facility in Los Angeles for $20,000 per month. The p...
A: Lease requires the lessor to pay the lease amount on a monthly or yearly basis in order to use the p...
Q: XYZ, a manufacturing Corporation, has provided the following data for the month of July. The balance...
A: Formula: Cost of goods manufactured = Direct materials cost + Direct labor cost + manufacturing over...
The base case for Grandmother’s Chicken Restaurant (see Example 4.2) is to do nothing. The capacity of
the kitchen in the base case is 80,000 meals per year. A capacity alternative for Grandmother’s Chicken
Restaurant is a two-stage expansion. This alternative expands the kitchen at the end of year 0, raising its
capacity from 80,000 meals per year to that of the dining area (105,000 meals per year). If sales in year 1
and 2 live up to expectations, the capacities of both the kitchen and the dining room will be expanded
at the end of year 3 to 130,000 meals per year. This upgraded capacity level should suffice up through
year 5. The initial investment would be $80,000 at the end of year 0 and an additional investment of $170,000 at the end of year 3. The pretax profit is $2 per meal. What are the pretax cash flows for this al-
ternative through year 5, compared with the base case?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
- Oberweis Dairy switched from delivery trucks with regular gasoline engines to ones with diesel engines. The diesel trucks cost $6,000 more than the ordinary gasoline trucks but costs $1,800 per year less to operate. Assume that Oberweis saves the operating costs at the end of each month. If Oberweis uses a discount rate of 1% per month, approximately how many months, at a minimum, must the diesel trucks remain in service for the switch to be sensible?Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided the following information about expenses anticipated for next year: The selling price of Poleskis single product is 16. In recent years, profits have fallen and Poleskis management is now considering a number of alternatives. Poleski wants to have a net income next year of 250,000, but expects to sell only 120,000 units unless some changes are made. The president of Poleski has asked you to calculate the companys projected net income (assuming 120,000 units are sold) and the sales needed to achieve the companys net income objective for next year. Also, compute Poleskis contribution margin per unit, contribution margin ratio, and break-even point for next year. The worksheet CVP has been provided to assist you. Note that the data from the problem have already been entered into the Data Section of the worksheet.A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
- NoFat manufactures one product, olestra, and sells it to large potato chip manufacturers as the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos brand products. For each of the past 3 years, sales of olestra have been far less than the expected annual volume of 125,000 pounds. Therefore, the company has ended each year with significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra that it produces each year. As a result, NoFats controller, Allyson Ashley, has decided to seek out potential special sales offers from other companies. One company, Patterson Union (PU)a toxic waste cleanup companyoffered to buy 10,000 pounds of olestra from NoFat during December for a price of 2.20 per pound. PU discovered through its research that olestra has proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that This is another way to use our expensive olestra plant! The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are as follows: In addition, Allyson met with several of NoFats key production managers and discovered the following information: The special order could be produced without incurring any additional marketing or customer service costs. NoFat owns the aging plant facility that it uses to manufacture olestra. NoFat incurs costs to set up and clean its machines for each production run, or batch, of olestra that it produces. The total setup costs shown in the previous table represent the production of 20 batches during the year. NoFat leases its plant machinery. The lease agreement is negotiated and signed on the first day of each year. NoFat currently leases enough machinery to produce 125,000 pounds of olestra. PU requires that an independent quality team inspects any facility from which it makes purchases. The terms of the special sales offer would require NoFat to bear the 1,000 cost of the inspection team. Based solely on financial factors, explain why NoFat should accept or reject PUs special sales offer.NoFat manufactures one product, olestra, and sells it to large potato chip manufacturers as the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos brand products. For each of the past 3 years, sales of olestra have been far less than the expected annual volume of 125,000 pounds. Therefore, the company has ended each year with significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra that it produces each year. As a result, NoFats controller, Allyson Ashley, has decided to seek out potential special sales offers from other companies. One company, Patterson Union (PU)a toxic waste cleanup companyoffered to buy 10,000 pounds of olestra from NoFat during December for a price of 2.20 per pound. PU discovered through its research that olestra has proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that This is another way to use our expensive olestra plant! The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are as follows: In addition, Allyson met with several of NoFats key production managers and discovered the following information: The special order could be produced without incurring any additional marketing or customer service costs. NoFat owns the aging plant facility that it uses to manufacture olestra. NoFat incurs costs to set up and clean its machines for each production run, or batch, of olestra that it produces. The total setup costs shown in the previous table represent the production of 20 batches during the year. NoFat leases its plant machinery. The lease agreement is negotiated and signed on the first day of each year. NoFat currently leases enough machinery to produce 125,000 pounds of olestra. PU requires that an independent quality team inspects any facility from which it makes purchases. The terms of the special sales offer would require NoFat to bear the 1,000 cost of the inspection team. Assume for this question that NoFat rejected PUs special sales offer because the 2.20 price suggested by PU was too low. In response to the rejection, PU asked NoFat to determine the price at which it would be willing to accept the special sales offer. For its regular sales, NoFat sets prices by marking up variable costs by 10%. If Allyson decides to use NoFats 10% markup pricing method to set the price for PUs special sales offer, a. Calculate the price that NoFat would charge PU for each pound of olestra. b. Calculate the relevant profit that NoFat would earn if it set the special sales price by using its markup pricing method. (Hint: Use the estimate of relevant costs that you calculated in response to Requirement 1b.) c. Explain why NoFat should accept or reject the special sales offer if it uses its markup pricing method to set the special sales price.NoFat manufactures one product, olestra, and sells it to large potato chip manufacturers as the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos brand products. For each of the past 3 years, sales of olestra have been far less than the expected annual volume of 125,000 pounds. Therefore, the company has ended each year with significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra that it produces each year. As a result, NoFats controller, Allyson Ashley, has decided to seek out potential special sales offers from other companies. One company, Patterson Union (PU)a toxic waste cleanup companyoffered to buy 10,000 pounds of olestra from NoFat during December for a price of 2.20 per pound. PU discovered through its research that olestra has proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that This is another way to use our expensive olestra plant! The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are as follows: In addition, Allyson met with several of NoFats key production managers and discovered the following information: The special order could be produced without incurring any additional marketing or customer service costs. NoFat owns the aging plant facility that it uses to manufacture olestra. NoFat incurs costs to set up and clean its machines for each production run, or batch, of olestra that it produces. The total setup costs shown in the previous table represent the production of 20 batches during the year. NoFat leases its plant machinery. The lease agreement is negotiated and signed on the first day of each year. NoFat currently leases enough machinery to produce 125,000 pounds of olestra. PU requires that an independent quality team inspects any facility from which it makes purchases. The terms of the special sales offer would require NoFat to bear the 1,000 cost of the inspection team. Assume for this question that Allysons relevant analysis reveals that NoFat would earn a positive relevant profit of 10,000 from the special sale (i.e., the special sales alternative). However, after conducting this traditional, short-term relevant analysis, Allyson wonders whether it might be more profitable over the long term to downsize the company by reducing its manufacturing capacity (i.e., its plant machinery and plant facility). She is aware that downsizing requires a multiyear time horizon because companies usually cannot increase or decrease fixed plant assets every year. Therefore, Allyson has decided to use a 5-year time horizon in her long-term decision analysis. She has identified the following information regarding capacity downsizing (i.e., the downsizing alternative): The plant facility consists of several buildings. If it chooses to downsize its capacity, NoFat can immediately sell one of the buildings to an adjacent business for 30,000. If it chooses to downsize its capacity, NoFats annual lease cost for plant machinery will decrease to 9,000. Therefore, Allyson must choose between these two alternatives: Accept the special sales offer each year and earn a 10,000 relevant profit for each of the next 5 years or reject the special sales offer and downsize as described above. Assume that NoFat pays for all costs with cash. Also, assume a 10% discount rate, a 5-year time horizon, and all cash flows occur at the end of the year. Using an NPV approach to discount future cash flows to present value, a. Calculate the NPV of accepting the special sale with the assumed positive relevant profit of 10,000 per year (i.e., the special sales alternative). b. Calculate the NPV of downsizing capacity as previously described (i.e., the downsizing alternative). c. Based on the NPV of Requirements 5a and 5b, identify and explain which of these two alternatives is best for NoFat to pursue in the long term.
- Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial $5 million investment in net operating working capital. The company’s tax rate is 25%. What is the initial investment outlay? The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay? Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. What is the initial investment outlay?At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?
- Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.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?Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves dont require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
