Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to...

Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to various car services that can customize them for their locale and business model. It manufactures two systems, the Star100 and the Star150, which differ in terms of capabilities. The following information is available:

Costs per Unit	Star100		Star150
Direct materials	$	70	$	80
Direct labor		24		30
Variable overhead		10		15
Fixed overhead		95		125
Total cost per unit	$	199	$	250
Price	$	280	$	380
Units sold		4,000		2,000

The average wage rate is $15 per hour. Variable overhead varies with the quantity of direct labor-hours. The plant has a capacity of 20,000 direct labor-hours, but current production uses only 10,400 direct labor-hours.

Required:

a. A nationwide car-sharing service has offered to buy 2,400 Star100 systems and 2,400 Star150 systems if the price is lowered to $190 and $240, respectively, per unit.

a-1. If Unter accepts the offer, how many direct labor-hours will be required to produce the additional systems?

a-2. Complete the following table to determine the differential profit increase (or decrease) if Unter accepts this proposal. Prices on regular sales will remain the same. .

b-1. Supposed that the car-sharing service has offered instead to buy 3,400 each of the two models at $190 and $240, respectively. This customer will purchase the 3,400 units of each model only in an all-or-nothing deal. That is, Unter must provide all 3,400 units of each model or none. Unter's management has decided to fill the entire special order for both models. In view of its capacity constraints, Unter will reduce sales to regular customers as needed to fill the special order. Complete the table below to determine the total contribution margin with the special order added.

b-2. How much will the profits change if the order is accepted? Assume that the company cannot increase its production capacity to meet the extra demand.

c-1. Assume that, in the situation presented in requirement b-1, the plant can work overtime. Direct labor costs for the overtime production increase to $22.50 per hour. Variable overhead costs for overtime production are $4 per hour more than for normal production. Complete the table below to determine the total contribution margin.

c-2. How much will the profits change in this situation?

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Expert Solution

ekkarill92 answered 1 year ago

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