90.2K

Verified Solution

Link Copied!

Northwind Corporation is a small information-systems consulting firm that specializes in helping companies implement standard sales-management software. The market for Northwind's services is very competitive. To compete successfully, Northwind must deliver quality service at a low cost. Northwind presents the following data for 2011 and 2012. Northwind follows a cost leadership strategy in 2012.

		2011	2012
1.	Number of jobs billed	70	100
2.	Selling price per job	$56,000	$50,000
3.	Software-implementation labor-hours	35,000	38,000
4.	Cost per software-implementation labor-hour	$62	$65
5.	Software-implementation support capacity (number of jobs it can do)	125	125
6.	Total cost of software-implementation support	$475,000	$525,000
7.	Software-implementation support-capacity cost per job (row 6 / row 5)	$3,800	$4,200

Software-implementation labor-hour costs are variable costs. Software-implementation support costs for each year depend on the software-implementation support capacity Northwind chooses to maintain each year (that is, the number of jobs it can do each year). Software-implementation support costs do not vary with the actual number of jobs done that year.

REQUIRED

1.	Calculate the amount and cost of unused software-implementation support capacity at the beginning of 2012, based on the actual number of jobs actually done in 2012.
2.	Suppose Northwind can add or reduce its software-implementation support capacity in increments of 10 units. What is the maximum amount of costs that Northwind could save in 2012 by downsizing software-implementation support capacity?
3.	Northwind, in fact, does not eliminate any of its unused software-implementation support capacity. Why might Northwind not downsize?

Answer & Explanation Solved by verified expert

See Answer