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TulStufi, Incorporated, selis a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company's products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes, Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,440 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding machine time, annual production is limited to 6,100 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums: Management believes 7,450 WvD drums could be sold each year if the company had sufficient manufacturing capacity. As an aiternative to adding another welding machine, management has considered buying additional drums from an outside suppliec. Harcor Industries, Incorporated, a supplier of quality products, would be able to provide up to 5.100 WVD-type drums per year at a price of $204 per drum, which TufStuff would resell to its customers at its normal selling price after appropriate relabeling. Megan Flores. TufStuff's production managec, has suggested that the company could make better use of the weiding machine by menufacturing bike frames, which would require only 0.5 hours of welding machine time per frame and yet sell for far more than the drums. Megan believes that TufStuff could sell up to 2,040 bike frames per year to bike manufacturers at a price of $349 each. The accounting department has provided the following data concerning the proposed new product: The bike frames could be produced with existing equipment and personinel. Manufacturing overtheod is allocated to products on the basis of direct labot hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory buifding. but some of it is variable. The variable manufacturing overhead has been estimated at $1.35 per WvD drum and $1.90 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside suppliet, The bike frames could be produced with existing equipment and personnel. Manufacturing overhead is allocated to products on the basis of direct labor-hours. Most of the manufacturing overhead consists of fixed common costs such as rent on the factory building. but some of it is variable. The variable manufacturing overhead has been estimated at $1.35 per WVD drum and $1.90 per bike frame. The variable manufacturing overhead cost would not be incurred on drums acquired from the outside supplier. Seliling and administrative expenses are allocated to products on the basis of revenues. Almost all of the selling and administrative expenses are fixed common costs, but it has been estimated that variable selling and administrative expenses amount to $.75 per WVD drum whether made or purchased and would be $3.50 per bike frame. All of the company's employees-direct and indirect-are paid for full 40.00-hour work weeks and the company has a policy of laying off workers only in major recessions. As soon as your analysis was shown to the top management team at Tufstuff, several managers got into an argument concerning how direct labor costs should be treated when making this decision. One manager argued thatdirect labor is always treated as a variable cost in textbooks and in practice and has always been considered a variable cost at Tufst iff. After all, "direct" means you can directly trace the cost to products. "If direct labor is not a veriable cost, what is?" Another manager argued just as strenuously that direct labor should be considered a fixed cost at Turstuff. No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary. Everyone classified as direct labor works a regular 40.00-hour workweek and overtime has not been necessary since the company adopted Lean Production techniques. Whether the welding machine is used to make drums or frames. the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the bike frames would require. Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WvD drums and bike frames? 2. Compute the contribution margin per unit. [assume direct labor is a fixed cost] 3. Compute the contribution margin per welding hour, [assume direct labor is a fixed cost) 4. Assuming direct labor is a fixed cost a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured b. What is the increase (decrease) in net operating income that would result from this plan over current operations? 5. Compute the contribution margin per unit. [assume direct labor is a variable cost] 6. Compute the contribution margin per welding hour: [assume direct labor is a variable cost) 7. Assuming direct labor is a variable cost: the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in to labor time that the bike frames would require. Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related WVD drums and bike frames? 2. Compute the contribution margin per unit. [assume direct labor is a fixed cost] 3. Compute the contribution margin per welding hour. [assume direct labor is a fixed cost] 4. Assuming direct labor is a fixed cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? 5. Compute the contribution margin per unit. [assume direct labor is a variable cost] 6. Compute the contribution margin per welding hour. [assume direct labor is a variable cost] 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to the WVD drums and bike frames? a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike fram that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Compute the contribution margin per unit. [assume direct labor is a fixed cost] (Do not round intermediate calculations, Round your answers to 2 decimal places.) What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Compute the contribution margin per welding hour. [assume direct labor is a fixed cost) (Round your intermediate calculations. and final answers to 2 decimal places.) that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? 5. Compute the contribution margin per unit. [assume direct labor is a variable cost] 6. Compute the contribution margin per welding hour. [assume direct labor is a variable cost] 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if a that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. [Assume direct labor is a fixed cost] ie total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total d bor time that the bike frames would require. equired: Would you be comfortable relying on the financial data provided by the accounting department for making decisions related to ND drums and bike frames? Compute the contribution margin per unit. [assume direct labor is a fixed cost] Compute the contribution margin per welding hour. [assume direct labor is a fixed cost] Assuming direct labor is a fixed cost: Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if an nat should be manufactured. What is the increase (decrease) in net operating income that would result from this plan over current operations? Compute the contribution margin per unit. [assume direct labor is a variable cost] Compute the contribution margin per welding hour. [assume direct labor is a variable cost] Assuming direct labor is a variable cost: Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any nat should be manufactured. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. What is the increase (decrease) in net operating income that would result from this plan over current operations? [Assume direct labor is a fixed cost] (Round your intermediate calculations to 2 decimal places. Round final answer to the nearest Whole dollar value.) Required: 1. Would you be comfortable relying on the financial data provided by the accounting department for making decisions relate WVD drums and bike frames? 2. Compute the contribution margin per unit. [assume direct labor is a fixed cost] 3. Compute the contribution margin per welding hour. [assume direct labor is a fixed cost] 4. Assuming direct labor is a fixed cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? 5. Compute the contribution margin per unit. [assume direct labor is a variable cost] 6. Compute the contribution margin per welding hour. [assume direct labor is a variable cost] 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Compute the contribution margin per unit. [assume direct labor is a variable cost] (Do not round intermediate calculations. Round your answers to 2 decimal places.) 5. Compute the contribution margin per unit. [assume direct labor is a variable cost] 6. Compute the contribution margin per welding hour. [assume direct labor is a variable cost] 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frai that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. Compute the contribution margin per welding hour. [assume direct labor is a variable cost] (Round your intermediate calculations and final answers to 2 decimal places.) 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if an that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. [Assume direct labor is a variable cost]. Determine the number of WvD drums (if any) that should be purchased and the number of WVD drums and/or bike frames (if any) that should be manufactured. 4. Assuming direct labor is a fixed cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frame that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? 5. Compute the contribution margin per unit. [assume direct labor is a variable cost] 6. Compute the contribution margin per welding hour. [assume direct labor is a variable cost] 7. Assuming direct labor is a variable cost: a. Determine the number of WVD drums (if any) that should be purchased and the number of WVD drums and/or bike frame that should be manufactured. b. What is the increase (decrease) in net operating income that would result from this plan over current operations? Complete this question by entering your answers in the tabs below. What is the increase (decrease) in net operating income that would result from this plan over current operations? [Assume direct labor is a variable cost] (Do not round intermediate calculations.)

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