The grinding machines are potentially the constraint in the

Reference no: EM13588353

1.Gwinnett Barbecue Sauce Corporation manufactures a Specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 15,000 cases of sauce each year but is currently only manufacturing and selling 13,200. The following costs relate to annual operations at 13,200 cases:

	Total Cost
Variable manufacturing cost	$264,000
Fixed manufacturing cost	$55,000
Variable selling and administrative cost	$26,400
Fixed selling and administrative cost	$37,000

Gwinnett normally sells its sauce for $40 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 1,800 cases of sauce but only if they can get the sauce for $20 per case. This special order would not affect regular sales or total fixed costs or variable costs per unit. If this special order is accepted, Gwinnett's profits for the year will:

Increase by $1,152

Decrease by 3,600

Decrease by 26,400

Decrease by 22,800

2. Brown Corporation makes four products in a single facility. These products have following unit product costs:

	Products
	A	B	C	D
Direct materials	$16.10	$20.00	$13.00	$15.70
Direct labor	18.10	21.50	15.90	9.90
Variable manufacturing overhead	4.90	6.10	8.60	5.60
Fixed manufacturing overhead	28.00	14.90	15.00	17.00
Unit product cost	$67.10	$62.50	$52.50	$48.20

Additional data concerning these products are listed below:

	Products
	A	B	C	D
Grinding minutes per unit	2.25	1.35	0.95	0.55
Selling price per unit	$81.20	$73.60	$70.40	$65.10
Variable selling cost per unit	$3.10	$3.60	$3.30	$4.00
Monthly demand in units	3,500	2,500	2,500	4,500.00

The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines. Direct labor is a variable cost in this company.

Which Product makes that MOST profitable use of the grinding machines?

Product B

Product A

Product C

Product D

3. (Ignore income taxes in this problem.) Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $29,000 and will have a 6-year useful life and a $4,800 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $32,800 per year. The cost of these prescriptions to the pharmacy will be about $26,600 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to

4.7 YEARS

3.9 YEARS

5.5 YEARS

4.3 YEARS

4. (Ignore income taxes in this problem). The Zinger Corporation is considering an investment that has the following data:

	Year 1	Year 2	Year 3	Year 4	Year 5
Investment	$15,000	$4,400
Cash inflow	$3,400	$3,400	$8,000	$5,400	$5,400

Cash inflows occur evenly throughout the year. The payback period for this investment is:

3years

3.9years

4years

4.9year

5. (Ignore income taxes in this problem.) The management of Helberg Corporation is considering a project that would require an investment of $213,000 and would last for 6 years. The annual net operating income from the project would be $105,000, which includes depreciation of $28,000. The scrap value of the project's assets at the end of the project would be $25,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to:

1.6years

2.0years

1.3years

1.6years

Reference no: EM13588353

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