Managerial Accounting
14th Edition
ISBN: 9781337270595
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 12, Problem 1PB
a)
To determine
Lean Manufacturing: Lean manufacturing aims at reducing the cost and minimizing the waste involved in the production, in order to optimize the value for the product or the service.
To Explain: The purchasing policy of Company HM.
b)
To determine
To Identify: The additional costs involved with the bid of Company IH beyond price, and the reasons for ignoring them.
c)
To determine
To Calculate: The additional costs per frame for the bid of Company IH, if the annual cost of money is 12%
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Identifying relevant information and making pricing decisions
Sea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue’s contribution margin income statement for the month ended December 31, 2018, contains the following data:
Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable Selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard has offered $15 per vest, which is below the normal sales price of $19.
Requirements
Identify each cost in the income statement as either relevant or irrelevant to Sea Blue’s decision.
Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.
Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order.
Special Order
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 85,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $15 per unit. Unit cost information is as follows:
Direct materials
$3.10
Direct labor
2.25
Variable overhead
1.15
Fixed overhead
1.80
Total
$8.30
Suppose a customer wants to have its company logo affixed to each paperweight using a label. Smooth Move would have to purchase a special logo labeling machine that will cost $12,000. The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct…
HD Hogg Motorcycle Company manufactures a variety of motorcycles. Hogg’s purchasingpolicy requires that the purchasing agents place each quarter’s purchasing requirementsout for bid. This is because the Purchasing Department is evaluated solely by its abilityto get the lowest purchase prices. The lowest cost bidder receives the order for the nextquarter (90 days). To make its motorcycles, Hogg requires 4,500 frames per quarter. Hoggreceived two frame bids for the third quarter, as follows:• Famous Frames, Inc.: $301 per frame. Delivery schedule: 50 frames per working day(90 days in the quarter).• Iron Horse Frames Inc.: $300 per frame. Delivery schedule: 4,500 (50 frames × 90 days)frames at the beginning of July to last for three months.Hogg accepted Iron Horse Frames Inc.’s bid because it was the low-cost bid.
Instructions1. Comment on Hogg’s purchasing policy.2. What are the additional (hidden) costs, beyond price, of Iron Horse FramesInc.’s bid? Why weren’t these costs…
Chapter 12 Solutions
Managerial Accounting
Ch. 12 - What is the benefit of the lean philosophy?Ch. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Why would a lean manufacturer strive to produce...Ch. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Prob. 13DQCh. 12 - Prob. 1BECh. 12 - Prob. 2BECh. 12 - Prob. 3BECh. 12 - Prob. 4BECh. 12 - Prob. 5BECh. 12 - Prob. 1ECh. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Calculate lead time Williams Optical Inc. is...Ch. 12 - Prob. 8ECh. 12 - Prob. 9ECh. 12 - Prob. 10ECh. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Lean accounting Modern Lighting Inc. manufactures...Ch. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Process activity analysis The Brite Beverage...Ch. 12 - Prob. 20ECh. 12 - Prob. 21ECh. 12 - Prob. 1PACh. 12 - Prob. 2PACh. 12 - Lean accounting Dashboard Inc. manufactures and...Ch. 12 - Prob. 4PACh. 12 - Prob. 1PBCh. 12 - Lead time Master Chef Appliance Company...Ch. 12 - Lean accounting Com-Tel Inc. manufactures and...Ch. 12 - Pareto chart and cost of quality report for a...Ch. 12 - Prob. 1ADMCh. 12 - Prob. 2ADMCh. 12 - Prob. 3ADMCh. 12 - Ethics in Action In August, Lannister Company...Ch. 12 - Prob. 3TIF
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