Question

In: Accounting

ABC company are comparing 2 method of production plan. Method A requires $8 of materials and...

ABC company are comparing 2 method of production plan. Method A requires $8 of materials and 11 minutes of both labor and machinery per unit produced. Method A also requires $113363 in fixed cost to set up. Method B requires $11 of materials and 17 minutes of both labor and machinery per unit produced. Method B is easier to setup, with only $84819 in fixed cost. There are additional fixed costs of $262466 incurred regardless of which method is selected. Columbus sells its products for $52 apiece. The company pays $26 per hour in wages and incurs maintenance and depreciation costs of $13 per hour of machine usage.

What is the break even volume at which methods alpha and beta are equally attractive?

Which method is better at volumes above the break even point you calculated? Provide a brief intuitive explanation.

Solutions

Expert Solution

Calculation of break even point:
Cost as follows:
Particulars Method A Method B
Material 8x 12x
Labor (11/60*26)x (17/60*26)x
Depreciation of Machinary (11/60*13)x (17/60*13)x
Fixed Cost 1,13,363 84,819
Break-even point is point at which the profit of both the methods become equal
Therefore:
8x+(11/60)*26x+(11/60)*13x+113363 = 11x+(17/60)*26x+(17/60)*13x+84819
8x+4.77x+2.38x+$ 1,13,363 = 11x+7.37x+3.68x+84819
15.15x +$ 113,363 = 22.05x + $ 84,819
$ 113,363 - $ 84,819 = 22.05x - 15.15x
x = 4,137 Units
Break-even Volume would be near to 4137 Units
Method A would be better at volumes above the break even point
Method A is more profitable because it has lower variable cost than Method B. Since the break even units has been crossed, Fixed Cost would not be relevant

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

ABC Company is creating the production plan for the coming month. The company has collected the...
ABC Company is creating the production plan for the coming month. The company has collected the following data on the average marketing demand during the past 25 months. Month Demand 1 60 2 65 3 67 4 58 5 59 6 56 7 65 8 65 9 69 10 65 11 70 12 71 13 64 14 75 15 70 16 72 17 65 18 77 19 62 20 59 21 78 22 58 23 60 24 68 25 59...
ABC Company makes and sells a single product. It requires 2.5 pounds of direct materials to...
ABC Company makes and sells a single product. It requires 2.5 pounds of direct materials to produce one unit of this product. Budgeted units to be produced for the next four months is given below: Budgeted Units to be Produced July 35,000 units August 31,000 units September 11,000 units October 34,000 units The company wants to maintain monthly ending inventories of direct materials equal to 36% of the next month's production needs. The cost of direct materials is $9 per...
Describe the relationship among the production plan, the master production schedule, and the materials requirements plan....
Describe the relationship among the production plan, the master production schedule, and the materials requirements plan. What are the benefits of using these types of plans? How do these plans fit into the strategic business plan? What is a major difference of the plans and how can that difference create potential challenges?
Direct Materials Variances Bellingham Company produces a product that requires 8 standard pounds per unit. The...
Direct Materials Variances Bellingham Company produces a product that requires 8 standard pounds per unit. The standard price is $5.5 per pound. If 3,400 units required 26,700 pounds, which were purchased at $5.66 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) total direct materials cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
ABC Company uses a Materials Inventory account to record both direct and indirect materials. ABC charges...
ABC Company uses a Materials Inventory account to record both direct and indirect materials. ABC charges direct materials to WIP, while indirect materials are charged to the Factory Overhead account. During the month of April, the company has the following cost information: Total materials (direct and indirect) purchased $ 90,000 Indirect materials issued to production 30,000 Total materials issued to production 110,000 Beginning materials inventory 50,000 The debit to the Factory Overhead account is:
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company...
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 35,000 October 25,000 August 80,000 November 11,500 September 49,000 December 12,000 The selling price of the beach umbrellas is $13 per unit....
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company...
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 37,000 October 27,000 August 84,000 November 13,500 September 53,000 December 14,000 The selling price of the beach umbrellas is $11 per unit....
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company...
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 42,500 October 32,500 August 95,000 November 19,000 September 64,000 December 19,500 The selling price of the beach umbrellas is $10 per unit....
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company...
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: a. The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 34,500 October 24,500 August 79,000 November 11,000 September 48,000 December 11,500 The selling price of the beach umbrellas is $12 per...
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company...
Problem 8-30 Integration of the Sales, Production, and Direct Materials Budgets [LO8-2, LO8-3, LO8-4] Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: The Marketing Department has estimated sales as follows for the remainder of the year (in units): July 41,000 October 31,000 August 92,000 November 17,500 September 61,000 December 18,000 The selling price of the beach umbrellas is $13 per unit....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT