Reference no: EM133189054
Question - Yamaha Inc. makes and sells three models of jet boats: Fishing, Wake and Luxury. Relevant annual production and sales information, on a per unit basis, is provided in the following table:
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Per Unit Financial Information
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Fishing
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Wake
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Luxury
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Selling price
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$30,000
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$50,000
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$70,000
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Production Costs:
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Direct materials
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$10,300
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$16,000
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$25,000
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Direct Labor ($20 per hour)
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$2,000
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$3,000
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$6,000
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Variable Overhead
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$1,500
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$2,250
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$4,500
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Fixed Overhead, allocation per unit
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$6,000
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$16,000
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$16,000
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SG&A Costs:
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Variable SG&A
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$1,200
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$1,550
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$1,800
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Fixed SG&A, allocation per unit
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$1,000
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$1,000
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$1,000
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Variable overhead is applied based on DLH's. Fixed overhead is applied based on machine hours, at a rate of $100 per MH. Explain and support your answers.
Assume that Yamaha faces huge demand for each model - well over production capacity.
a. Which model Yamaha should emphasize, if it faces limited amount of skilled labor?
b. Which model Yamaha should emphasize, if it faces limited amount of machine hours?
Assume now that Yamaha faces the following annual demand for each model, and that skill labor is unlimited but machine hours capacity is limited at 36,000 MHs per year.
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Fishing
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Wake
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Luxury
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Demand - quantity
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400
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150
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200
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c. What should be the production allocation? (That is, how many boats of each model should Yamaha produce?)
d. What is the maximum total contribution margin that can be obtain with 36,000 MHs (and the above limited demand)?
e. Caterpillar offered Yamaha an annual upgrade service. The upgrade would double the annual MH capacity to 72,000 MHs. What is the maximum amount that Yamaha would be willing to pay for the annual upgrade service?
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