Problemquality improvement relevant costs and relevant

Assignment Help Financial Accounting

Reference no: EM13377550

Problem:

Quality Improvement, Relevant costs, and Relevant Revenues. The Tan Corporation uses multicolor molding to make plastic lamps. The molding operation has a capacity of 200,000 units per year. The demand for lamps is very strong. Tan will be able to sell whatever output quantities it can produce at $40 per lamp. Tan can start only 200,000 units into production in the Molding Department because of capacity constraints on the molding machines. If a defective unit is produced at the molding operation, it must be scrapped at a net disposal value of zero. Of the 200,000 units started at the molding operation, 30,000 defective units (15%) are produced. The cost of a defective unit, based on total (fixed and variable) manufacturing costs incurred up to the molding operation, equals $25 per unit, as follows:

Direct materials(variable)											$16 per unit
Direct manufacturing labor, setup labor, and materials handling labor (variable)											3 per unit
Equipment, rent and other allocated overhead, including inspection and testeing costs on scrapped parts(fixed)											6 per unit
Total											$25 per unit

Tan's designers have determined that adding a different type of material to the existing diect materials would result in no defective units being produced, but it would increase the variable costs by $4 per lamp in the Molding Department.

1. Should Tan use the new material? Show your calculations.

2. What nonfinancial and qualitative factors should Tan consider in making the descision.

Reference no: EM13377550

Questions Cloud

Suppose that the probability that a used bike is a lemon : suppose that the probability that a used bike is a lemon low quality is p and the probability that a used bike is a

The city of shipley maintains an employee retirement fund a : the city of shipley maintains an employee retirement fund a single-employer defined benefit plan that provides annuity

This week you will apply the specific knowledge of market : this week you will apply the specific knowledge of market structures you have gained in class to abbott laboratories.

Suppose that snap fitness estimates that each location : suppose that snap fitness estimates that each location incurs 4000 per month in fixed operating expenses plus 2000 to

Problemquality improvement relevant costs and relevant : problemquality improvement relevant costs and relevant revenues. the tan corporation uses multicolor molding to make

Libor is the london interbank offered rate a panel of : libor is the london interbank offered rate. a panel of banks submit their estimated borrowing rates each day. libor

Explain how a firm values the contribution of workers to : explain how a firm values the contribution of workers to its profitability.would a profit-maximizing competitive firm

Are all expenditures of a government included in the : are all expenditures of a government included in the calculation of gdp for that nation? why or why not? if not what

Landline corporation is a public company with a calendar : landline corporation is a public company with a calendar year-end. landline provides a wide variety of

User Account

All Pages