Compute the number of units that should be purchased of each of the raw materials in order to produce the budgeted units and comply with inventory policy. 

BUS 108 Project 2

Question1

A company had a budgeted production of 12000 units and actual production of 13200 units. Two types of raw material, P and Q are used in the manufacturing of the products. The budgeted raw material requirement of the company was expected to be 3 lbs. of Material P at a price of $ 0.25 per lbs. and 2 lbs. of Material Q at a price of $ 0.35 per lbs. for every unit produced. The company actually ended up using 42000 lbs. of P at an actual cost of $0.19 per lbs. and 25000 lbs. of Q at an actual cost of $0.38 per lbs. Calculate Direct Material Price and Usage Variance for material P and Q.

Question 2

The budget committee for Amacom Company, with the help of the district sales manager, projects sales of 80,000 units of its primary product next year. The budget committee and key executives have decided that finished goods inventory should be decreased from the 10,000 units expected at the end of the current year, to 7,000 units at the end of next year. Each unit of finished product requires three units of material MPS15 and six units of material NAV23. At the end of the current year, the inventory of material MPS15 is expected to be 10,000 units and material NAV23 is expected to be 20,000 units. The budget committee believes that these material inventories can be reduced by 80% during the coming year because of the newly installed supply chain system.

Required:(a) Calculate the number of units Amacom expects to produce during the next year.
(b) Compute the number of units that should be purchased of each of the raw materials in order to produce the budgeted units and comply with inventory policy. 

Question 3

St. Joseph Hospital has been hit with a number of complaints about its food service from patients, employees, and cafeteria customers.  These complaints, coupled with a very tight local labor market, have prompted the organization to contact Nationwide Institutional Food Service (NIFS) about the possibility of an outsourcing arrangement.

The hospital’s business office has provided the following information for food service for the year just ended: food costs, $890,000; labor, $85,000; variable overhead, $35,000; allocated fixed hospital overhead, $60,000; and cafeteria food sales, $80,000.

Conversations with NIFS personnel revealed the following information:

  • NIFS will charge St. Joseph Hospital $14 per day for each patient served.  Note: This figure has been “marked up” by NIFS to reflect the firm’s cost of operating the hospital cafeteria.
    • St. Joseph’s 250-bed facility operates throughout the year and typically has an average occupancy rate of 70%.
    • Labor is the primary driver for variable overhead.  If an outsourcing agreement is reached, hospital labor costs will drop by 90%.  NIFS plans to use St. Joseph facilities for meal preparation.
    • Cafeteria food sales are expected to increase by 15% because NIFS will offer an improved menu selection.

Should St. Joseph outsource its food-service operation to NIFS or keep it in-house?

Question 4

Cornell Corporation manufactures faucets.  Several weeks ago, the firm received a special-order inquiry from Yale, Inc.  Yale desires to market a faucet similar to Cornell’s model no. 55 and has offered to purchase 3,000 units. The following data are available:

  • Cost data for Cornell’s model no. 55 faucet: direct materials, $45; direct labor, $30 (2 hours at $15 per hour); and manufacturing overhead, $70 (2 hours at $35 per hour).
    • The normal selling price of model no. 55 is $180; however, Yale has offered Cornell only $115 because of the large quantity it is willing to purchase.
    • Yale requires a modification of the design that will allow a $4 reduction in direct-material cost.
    • Cornell’s production supervisor notes that the company will incur $8,700 in additional set-up costs and will have to purchase a $3,300 special device to manufacture these units.  The device will be discarded once the special order is completed.
    • Total manufacturing overhead costs are applied to production at the rate of $35 per labor hour.  This figure is based, in part, on budgeted yearly fixed overhead of $624,000 and planned production activity of 24,000 labor hours. 
    • Cornell will allocate $5,000 of existing fixed administrative costs to the order as “…part of the cost of doing business.”

Required:

Currently Cornell manufactures 18000 units of model no. 55 and has a total capacity of 22000 units. Should the order be accepted?

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