Bienestar, Inc., has two plants that manufacture a line of wheelchairs. One is located in Kansas City, and the other in Tulsa. Each plant is set up as a profit center. During the past year, both plants sold their tilt wheelchair model for $1,620. Sales volume averages 20,000 units per year in each plant. Recently, the Kansas City plant reduced the price of the tilt model to $1,440. Discussion with the Kansas City manager revealed that the price reduction was possible because the plant had reduced its manufacturing and selling costs by reducing what was called “non-value-added costs.” The Kansas City manufacturing and selling costs for the tilt model were $1,260 per unit. The Kansas City manager offered to loan the Tulsa plant his cost
The plant controller and the Kansas City cost accounting manager have assembled the following data for the most recent year. The actual cost of inputs, their value-added (ideal) quantity levels, and the actual quantity levels are provided (for production of 20,000 units). Assume there is no difference between actual prices of activity units and standard prices.
Required:
- 1. Calculate the target cost for expanding the Tulsa plant’s market share by 20 percent, assuming that the per-unit profitability is maintained as requested by the plant manager.
- 2. Calculate the non-value-added cost per unit. Assuming that non-value-added costs can be reduced to zero, can the Tulsa plant match the Kansas City per-unit cost? Can the target cost for expanding market share be achieved? What actions would you take if you were the plant manager?
- 3. Describe the role that benchmarking played in the effort of the Tulsa plant to protect and improve its competitive position.
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Chapter 12 Solutions
EBK CORNERSTONES OF COST MANAGEMENT
- Kleen Corporation, a privately owned and operated single-stream recycling facility, has annual contracts with several cities in the Tri-County Metropolitan Area, Kleen Corporation wants to add a new set of sensors to its existing machinery that will separate plastics and metals from paper and glass materials earlier in the separation process. Two versions of the sensor equipment are available from the Green Corporation. Model 400 has a first cost of $700,000, while Model 1000 costs $1 million. Both have an expected 10% salvage value after their respective useful lives of 6 and 3 years. Assume you work for Kleen Corporation as a project engineer. You have made first-cut estimates of the annual savings (with no annual increases for efficiency) and expenses (AOC with no annual decreases or increases) for both models. Required: a. Perform a ROR analysis using MARR = 5% per year to recommend one of the two models to your president. b. Whether there is any ranking inconsistency present with…arrow_forwardHome Builder Supply, a retailer in the home improvement industry, currently operates seven retail outlets in the Maritimes. Management is contemplating building an eighth retail store across town from its most successful retail outlet. The company already owns the land for this store, which currently has an abandoned warehouse located on it. Last month, the marketing department spent $15,000 on market research to determine the extent of customer demand for the new store. Now Home Builder Supply must decide whether to build and open the new store. Which of the following should be included as part of the incremental earnings for the proposed new store? a. The original purchase price of the land where the store will be located. b. The cost of demolishing the abandoned warehouse and clearing the lot. c. The loss of f sales in the existing retail outlet, if customers who previously drove from Dartmouth to Halifax to shop at the existing outlet become customers of the new store instead. d.…arrow_forwardJanet Garcia is considering expanding her business. She plans to hire a salesperson to cover trade shows. Because of compensation, travel expenses, and booth rental, fixed costs for a trade show are expected to be $8,700. The booth will be open 29 hours during the trade show. Ms. Garcia also plans to add a new product line, ProOffice, which will cost $190 per package. She will continue to sell the existing product, EZRecords, which costs $93 per package. Ms. Garcia believes that the salesperson will spend approximately 19 hours selling EZRecords and 10 hours marketing ProOffice. Required: a. Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 86 units of EZRecords and 58 units of ProOffice. (Round "Cost per unit" answers to 2 decimal places.) EZRecords ProOffice Total cost of sales Cost per unit b. Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 199 units…arrow_forward
- In the current year, Big Burgers, Inc., expanded its fast-food operations by opening several new stores in Texas. The company incurred the following costs in the current year: market appraisal ($50,000), consulting fees ($72,000), advertising ($47,000), and traveling to train employees ($31,000). The company is willing to incur these costs because it foresees strong customer demand in Texas for the next several years. What amount should Big Burgers report as an expense in its income statement associated with these costs?arrow_forwardFruit-To-Go (FTG) processes fruit for shipping overseas. FTG commissioned a study to look into the feasibility of changing the packaging of the fruit from cans to sealed bags. The Consultant charged $54,000 for the report.The report concluded that the new packaging will increase sales and reduce some operating costs. The new packaging machinery will cost $1,100,000. The new machine is expected to last 5 years. The Taxation Office advise the life of the machine, for tax purposes, is 4 years. The old canning machinery was purchased 2 years ago for $800,000 and was being depreciated at $200,000 and will be for the next 2 years. The old machine could be sold today for $260,000. In 5 years it will be worth nothing. Installing the new machine will require staff training (a tax deductible expense) of $35,000 before production can commence. Due to the lower cost of the bags Inventory required will be reduced by $80,000 for the life of the project. The new sales of bagged fruit is…arrow_forwardFruit-To-Go (FTG) processes fruit for shipping overseas. FTG commissioned a study to look into the feasibility of changing the packaging of the fruit from cans to sealed bags. The Consultant charged $54,000 for the report.The report concluded that the new packaging will increase sales and reduce some operating costs. The new packaging machinery will cost $1,100,000. The new machine is expected to last 5 years. The Taxation Office advise the life of the machine, for tax purposes, is 4 years. The old canning machinery was purchased 2 years ago for $800,000 and was being depreciated at $200,000 and will be for the next 2 years. The old machine could be sold today for $260,000. In 5 years it will be worth nothing. Installing the new machine will require staff training (a tax deductible expense) of $35,000 before production can commence. Due to the lower cost of the bags Inventory required will be reduced by $80,000 for the life of the project. The new sales of bagged fruit is…arrow_forward
- Fruit-To-Go (FTG) processes fruit for shipping overseas. FTG commissioned a study to look into the feasibility of changing the packaging of the fruit from cans to sealed bags. The Consultant charged $54,000 for the report.The report concluded that the new packaging will increase sales and reduce some operating costs. The new packaging machinery will cost $1,100,000. The new machine is expected to last 5 years. The Taxation Office advise the life of the machine, for tax purposes, is 4 years. The old canning machinery was purchased 2 years ago for $800,000 and was being depreciated at $200,000 and will be for the next 2 years. The old machine could be sold today for $260,000. In 5 years it will be worth nothing. Installing the new machine will require staff training (a tax deductible expense) of $35,000 before production can commence. Due to the lower cost of the bags Inventory required will be reduced by $80,000 for the life of the project. The new sales of bagged fruit is…arrow_forwarda retailer in the home improvement industry, currently operates seven retail outlets in Manama and Dubai. Management is contemplating building an eighth retail store across town from its most successful retail outlet. The company already owns the land for this store, which currently has an abandoned warehouse located on it. Last month, the marketing department spent $10,000 on market research to determine the extent of customer demand for the new store. Now Noor Supply must decide whether to build and open the new store. Which of the following should be included as part of the incremental earnings (or cash flow) for the proposed new retail store? The cost of the land where the store will be located. The cost of demolishing the abandoned warehouse and clearing the lot. The loss of sales in the existing retail outlet, if customers who previously drove across town to shop at the existing outlet become customers of the new store instead. The $10,000 in market research spent to…arrow_forwardFruit-To-Go (FTG) processes fruit for shipping overseas. FTG commissioned a study to look into the feasibility of changing the packaging of the fruit from cans to sealed bags. The Consultant charged $54,000 for the report.The report concluded that the new packaging will increase sales and reduce some operating costs. The new packaging machinery will cost $1,100,000. The new machine is expected to last 5 years. The Taxation Office advise the life of the machine, for tax purposes, is 4 years. The old canning machinery was purchased 2 years ago for $800,000 and was being depreciated at $200,000 and will be for the next 2 years. The old machine could be sold today for $260,000. In 5 years it will be worth nothing. Installing the new machine will require staff training (a tax deductible expense) of $35,000 before production can commence. Due to the lower cost of the bags Inventory required will be reduced by $80,000 for the life of the project. The new sales of bagged fruit is…arrow_forward
- Fruit-To-Go (FTG) processes fruit for shipping overseas. FTG commissioned a study to look into the feasibility of changing the packaging of the fruit from cans to sealed bags. The Consultant charged $54,000 for the report.The report concluded that the new packaging will increase sales and reduce some operating costs. The new packaging machinery will cost $1,100,000. The new machine is expected to last 5 years. The Taxation Office advise the life of the machine, for tax purposes, is 4 years. The old canning machinery was purchased 2 years ago for $800,000 and was being depreciated at $200,000 and will be for the next 2 years. The old machine could be sold today for $260,000. In 5 years it will be worth nothing. Installing the new machine will require staff training (a tax deductible expense) of $35,000 before production can commence. Due to the lower cost of the bags Inventory required will be reduced by $80,000 for the life of the project. The new sales of bagged fruit is…arrow_forwardFruit-To-Go (FTG) processes fruit for shipping overseas. FTG commissioned a study to look into the feasibility of changing the packaging of the fruit from cans to sealed bags. The Consultant charged $54,000 for the report. The report concluded that the new packaging will increase sales and reduce some operating costs. The new packaging machinery will cost $1,100,000. The new machine is expected to last 5 years. The Taxation Office advise the life of the machine, for tax purposes, is 4 years. The old canning machinery was purchased 2 years ago for $800,000 and was being depreciated at The old canning machinery was purchased 2 years ago for $800,000 and was being depreciated at $200,000 and will be for the next 2 years. The old machine could be sold today for $260,000. In 5 years it will be worth nothing. Installing the new machine will require staff training (a tax deductible expense) of $35,000 before production can commence. Due to the lower cost of the bags Inventory required…arrow_forwardInteliSystems manufactures an optical switch that it uses in its final product. InteliSystems incurred the following manufacturing costs when it produced 70,000 units last year as shown in the chart below: InteliSystems does not yet know how many switches it will need this year; however, another company has offered to sell InteliSystems the switch for $8.50 per unit. If InteliSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used for any other purpose; yet none of the fixed costs are avoidable. Requirements 1. Given the same cost structure, should InteliSystems make or buy the switch? Show your analysis. 2. Now, assume that InteliSystems can avoid $105,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, InteliSystems needs 75,000 switches a year rather than 70,000 switches. What should the company do now? 3. Given the last scenario, what is the most InteliSystems would be willing to…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning