Total Product Offer
One of the American Marketing Association's definitions of marketing says it's "a set of processes for creating, communicating, and delivering value to customers." When consumers calculate the value of a product, they look at the benefits and then subtract the price to see whether the benefits exceed the costs, including the cost of driving to the store or shipping fees if they buy the product online. Whether consumers perceive a product as the best value depends on many factors, including the benefits they seek and the service they receive. To satisfy consumers, marketers must learn to listen better and constantly adapt to changing market demands. From a strategic marketing viewpoint, a product is more than just the physical good or service. A total product offer consists of everything consumers evaluate when deciding whether to buy something. The basic product or service may be a cell phone or a hotel room, but the total product offer includes other aspects of the good or service.
Read the case below and answer the questions that follow.
At the time the new iPhone 3GS was introduced, it was described on Apple's website in the following way:
Priced from $199 to $299, Apple promises that its new iPhone 3GS is the fastest, most powerful iPhone yet. The new version features video recording, Voice Control, and up to 32GB of storage. iPhone is more than just a phone. It combines three devices in one:
a revolutionary mobile phone, a widescreen iPod, and a breakthrough Internet device. All that and more makes it the best phone you'll ever use. The Apple iPhone is a revolutionary phone. With the Multi-Touch interface on iPhone, you can make a call simply by tapping a name or number in your contacts or favorites list, your call log, or just about anywhere. Visual Voicemail lets you select and listen to messages in whatever order you want—just like email. The Apple iPhone shows off your content—music, movies, TV shows, and more—on a beautiful 3.5-inch display. Add to your collection by downloading music and video wirelessly from the iTunes Store. Scroll through songs and playlists with the touch of a finger. Even browse your album artwork using Cover Flow. The Apple iPhone uses fast 3G and Wi-Fi wireless connections to deliver rich HTML email, Maps with GPS, and Safari—the most advanced web browser on a mobile device. It has Google and Yahoo! search built in. And since iPhone multitasks, you can make a phone call while emailing a photo or surfing the web over a Wi-Fi or 3G connection.
The Apple iPhone comes with some amazing applications. And you can choose from thousands more on the App Store and download them with a tap. Your iPhone gets even better with every new app. Play games. Be more productive. Keep yourself entertained. No matter what you want to do on iPhone, there's an app for that. With iPhone, Apple combined innovative hardware features with the world's most advanced mobile operating system to redefine what a mobile phone can do. Applications work together seamlessly and they sync with your computer—whether you're on a Mac or a PC. From its revolutionary Multi-Touch display to its intelligent keyboard to its smart sensors, iPhone is years ahead of any other mobile phone.
What is the total product offer for the Apple iPhone?
In: Operations Management
Absorption and Variable Costing Income Statements for Two Months and Analysis
During the first month of operations ended July 31, Head Gear Inc. manufactured 32,600 hats, of which 30,600 were sold. Operating data for the month are summarized as follows:
| Sales | $201,960 | |||
| Manufacturing costs: | ||||
| Direct materials | $123,880 | |||
| Direct labor | 32,600 | |||
| Variable manufacturing cost | 16,300 | |||
| Fixed manufacturing cost | 13,040 | 185,820 | ||
| Selling and administrative expenses: | ||||
| Variable | $9,180 | |||
| Fixed | 6,700 | 15,880 | ||
During August, Head Gear Inc. manufactured 28,600 designer hats and sold 30,600 hats. Operating data for August are summarized as follows:
| Sales | $201,960 | |||
| Manufacturing costs: | ||||
| Direct materials | $108,680 | |||
| Direct labor | 28,600 | |||
| Variable manufacturing cost | 14,300 | |||
| Fixed manufacturing cost | 13,040 | 164,620 | ||
| Selling and administrative expenses: | ||||
| Variable | $9,180 | |||
| Fixed | 6,700 | 15,880 | ||
Required:
1a. Prepare an income statement for July using the absorption costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Absorption Costing Income Statement | ||
| For the Month Ended July 31 | ||
| Sales | $ | |
| Cost of goods sold: | ||
| Cost of goods manufactured | $ | |
| Inventory, July 31 | ||
| Total cost of goods sold | ||
| Gross profit | $ | |
| Selling and administrative expenses | ||
| Income from operations | $ | |
Feedback
1a. & b. Sales - (cost of goods manufactured - ending
inventory*) = Gross profit; gross profit - selling and
administrative expenses = income from operations
*(Manufactured Units - Sold units) x (total manufacturing
costs/manufactured units)
a & b. Sales - variable cost of goods sold* = Manufacturing
margin; Manufacturing margin - variable selling and administrative
expenses = Contribution margin; Contribution margin - (fixed
manufacturing costs + fixed selling and administrative expenses) =
income from operations
*Variable cost of goods sold = Variable cost of goods manufactured
- [(Manufactured Units - Sold units) x (variable manufacturing
costs/manufactured units)]
Learning Objective 1 and Learning Objective 2.
1b. Prepare an income statement for August using the absorption costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Absorption Costing Income Statement | ||
| For the Month Ended August 31 | ||
| Sales | $ | |
| Cost of goods sold: | ||
| Inventory, August 1 | $ | |
| Cost of goods manufactured | ||
| Total cost of goods sold | ||
| Gross profit | $ | |
| Selling and administrative expenses | ||
| Income from operations | $ | |
Feedback
Learning Objective 1 and Learning Objective 2.
2a. Prepare an income statement for July using the variable costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Variable Costing Income Statement | ||
| For the Month Ended July 31 | ||
| Sales | $ | |
| Variable cost of goods sold: | ||
| Variable cost of goods manufactured | $ | |
| Inventory, July 31 | ||
| Total variable cost of goods sold | ||
| Manufacturing margin | $ | |
| Variable selling and administrative expenses | ||
| Contribution margin | $ | |
| Fixed costs: | ||
| Fixed manufacturing costs | $ | |
| Fixed selling and administrative expenses | ||
| Total fixed costs | ||
| Income from operations | $ | |
Feedback
2a. & b. Sales - (cost of goods manufactured - ending
inventory*) = Gross profit; gross profit - selling and
administrative expenses = income from operations
*(Manufactured Units - Sold units) x (total manufacturing
costs/manufactured units)
a & b. Sales - variable cost of goods sold* = Manufacturing
margin; Manufacturing margin - variable selling and administrative
expenses = Contribution margin; Contribution margin - (fixed
manufacturing costs + fixed selling and administrative expenses) =
income from operations
*Variable cost of goods sold = Variable cost of goods manufactured
- [(Manufactured Units - Sold units) x (variable manufacturing
costs/manufactured units)]
Learning Objective 1 and Learning Objective 2.
2b. Prepare an income statement for August using the variable costing concept. Enter all amounts as positive numbers.
| Head Gear Inc. | ||
| Variable Costing Income Statement | ||
| For the Month Ended August 31 | ||
| Sales | $ | |
| Variable cost of goods sold: | ||
| Inventory, August 1 | $ | |
| Variable cost of goods manufactured | ||
| Total variable cost of goods sold | ||
| Manufacturing margin | $ | |
| Variable selling and administrative expenses | ||
| Contribution margin | $ | |
| Fixed costs: | ||
| Fixed manufacturing costs | $ | |
| Fixed selling and administrative expenses | ||
| Total fixed costs | ||
| Income from operations | $ | |
Feedback
Learning Objective 1 and Learning Objective 2.
3a. For July, income from operations reported under variable costing is less than absorption costing due to part of fixed manufacturing costs that are expensed.
3b. When large changes in inventory levels occur from one period to the next, it is possible for management to misinterpret such increases (or decreases) in income from operations as due to changes in:
costs.
prices.
sales volume.
"sales volume", "prices" and "costs" are correct.
None of these choices is correct.
The correct answer is:
d
4. Based on your answers to (1) and (2), did Head Gear Inc. operate more profitably in July or in August? Explain.
Head Gear Inc. was equally profitable in July and in August under the variable costing concept. The difference in income reported under the absorption costing concept is due to allocating fixed manufacturing costs to the July 31 ending inventory .
Feedback
3a. Review the effects on income from operations when the number of units manufactured differs from the number of units sold and how managers should analyze these situations.
3b. Remember that under absorption costing, both variable and fixed selling and administrative costs are combined and then subtracted from gross profit to obtain income from operations.
Learning Objective 1 and Learning Objective 2.
Feedback
Partially correct
In: Accounting
Georgia Products Inc. completed and transferred 190,000 particleboard units of production from the Pressing Department. There was no beginning inventory in process in the department. The ending in-process inventory was 16,000 units, which were 3/5 complete as to conversion cost. All materials are added at the beginning of the process. Direct materials cost incurred was $566,500, the direct labor cost incurred was $258,680, and factory overhead applied was $60,680.
Determine the following for the Pressing Department. Round "cost per equivalent unit" answers to the nearest cent.
A. Total conversion cost
B. Conversion cost per equivalent unit
C. Direct materials cost per equivalent unit
In: Accounting
Suppose that a firm uses labour and capital in production. The wage rate is $10 per unit of labour and the rental cost of capital is $10 per unit. The firm is currently producing 100 units of labour and the rental cost of capital is $10 per unit. the firm is currently producing 100 units of output by using cost minimizing input combination of 50 units of labor and 50 units of capital.
On an isoquant and iso-cost diagram, show than an increase in output from 100 units to 150 units will result in higher short-run total cost, average cost and marginal cost than in the long-run counterparts.
In: Economics
The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year:
| Niland Company Machining Department Monthly Production Budget |
|
| Wages | $515,000 |
| Utilities | 38,000 |
| Depreciation | 63,000 |
| Total | $616,000 |
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
| Amount Spent | Units Produced | |||
| January | $582,000 | 126,000 | ||
| February | 553,000 | 114,000 | ||
| March | 530,000 | 103,000 | ||
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been significantly less than the monthly static budget of 616,000. However, the plant manager believes that the budget should not remain fixed for every month but should “flex” or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows:
| Wages per hour | $15 |
| Utility cost per direct labor hour | $1.1 |
| Direct labor hours per unit | 0.25 |
| Planned monthly unit production | 137,000 |
a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.
| Niland Company | |||
| Machining Department Budget | |||
| For the Three Months Ending March 31 | |||
| January | February | March | |
| Units of production | 126,000 | 114,000 | 103,000 |
| $ | $ | $ | |
| Total | $ | $ | $ |
| Supporting calculations: | |||
| Units of production | 126,000 | 114,000 | 103,000 |
| Hours per unit | x | x | x |
| Total hours of production | |||
| Wages per hour | x $ | x $ | x $ |
| Total wages | $ | $ | $ |
| Total hours of production | |||
| Utility costs per hour | x $ | x $ | x $ |
| Total utilities | $ | $ | $ |
b. Compare the flexible budget with the actual expenditures for the first three months.
| January | February | March | |
| Total flexible budget | $ | $ | $ |
| Actual cost | |||
| Excess of actual cost over budget | $ | $ | $ |
What does this comparison suggest?
| The Machining Department has performed better than originally thought. | |
| The department is spending more than would be expected. |
In: Accounting
Paulina's Pizza is a well-known pizzeria and has contracted with a Business Analyst to estimate its cost equation. Based on
the data provided, the Business Analyst hypothesized that total costs were a function of fixed costs and variable costs. Recalling
from her BUSI 108 class, she hypothesized the following equation to be estimated,
Estimated Total Costs = b0 + b1*Pizzas
where
b0 = total fixed costs
b1 = marginal cost to produce 1 pizza
Pizzas = the quantity of pizzas produced
Using the least squares method, her regression results are the following,
Estimated Total Cost = 1,000 + 4*Pizzas
Paulina's Pizza tells the Business Analyst that they have tracked daily customer demand and the number of Pizzas sold depends
on the day of the week. Monday through Thursday (MidWeek) a low of 140 Pizzas per day are sold but Friday through Sunday
(Weekend) a high of 220 Pizzas per day are sold.
Pizzas are sold at a price of $10 per Pizza.
a) Assemble the Parameter Sections and the Model Sections for Paulina's Pizza. Calculate Total Cost, Total Revenue and Profit/
(Loss) for 170 Pizzas sold. Starting at 140 Pizzas and increasing by 10 to a maximum of 220 Pizzas, create a One-Way Data Table
calculating the Profit/(Loss) for the range of Pizzas that are sold during a week.
An area not-for-profit organization has asked Paulina's to assist with a fundraiser for their organization. The request is to
give 20% of the Pizza Price sold their organization when a customer presents a printed coupon from the organization. From
past experience with fundraisers, the percentage of customers that present the coupon ranged from 30% to 50%.
b) Using the What-If Analysis and the associated functions, create a table to reveal the range of Profit/(Loss) from both
the range of possible Pizzas sold and the percentage of customers who present the 20% coupon. There are several ways to
approach this problem but the objective is to create a table to show the various outcomes. Remember, Paulina's Pizza will
give 20% of its Total Revenue for that one day to a range of 30% to 50% of the customers that present the coupon.
In: Finance
Static Budget versus Flexible Budget
The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year:
| Niland Company Machining Department Monthly Production Budget |
|
| Wages | $315,000 |
| Utilities | 17,000 |
| Depreciation | 28,000 |
| Total | $360,000 |
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
| Amount Spent | Units Produced | |||
| January | $339,000 | 76,000 | ||
| February | 322,000 | 69,000 | ||
| March | 306,000 | 62,000 | ||
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been significantly less than the monthly static budget of 360,000. However, the plant manager believes that the budget should not remain fixed for every month but should “flex” or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows:
| Wages per hour | $19 |
| Utility cost per direct labor hour | $1 |
| Direct labor hours per unit | 0.2 |
| Planned monthly unit production | 82,000 |
a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.
| Niland Company | |||
| Machining Department Budget | |||
| For the Three Months Ending March 31 | |||
| January | February | March | |
| Units of production | 76,000 | 69,000 | 62,000 |
| $ | $ | $ | |
| Total | $ | $ | $ |
| Supporting calculations: | |||
| Units of production | 76,000 | 69,000 | 62,000 |
| Hours per unit | x | x | x |
| Total hours of production | |||
| Wages per hour | x $ | x $ | x $ |
| Total wages | $ | $ | $ |
| Total hours of production | |||
| Utility costs per hour | x $ | x $ | x $ |
| Total utilities | $ | $ | $ |
b. Compare the flexible budget with the actual expenditures for the first three months.
| January | February | March | |
| Total flexible budget | $ | $ | $ |
| Actual cost | |||
| Excess of actual cost over budget | $ | $ | $ |
What does this comparison suggest?
| The Machining Department has performed better than originally thought. | |
| The department is spending more than would be expected. |
In: Accounting
The production supervisor of the Machining Department for Hagerstown Company agreed to the following monthly static budget for the upcoming year:
| Hagerstown Company Machining Department Monthly Production Budget |
|
| Wages | $863,000 |
| Utilities | 65,000 |
| Depreciation | 108,000 |
| Total | $1,036,000 |
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
| Amount Spent | Units Produced | |||
| May | $979,000 | 99,000 | ||
| June | 935,000 | 90,000 | ||
| July | 893,000 | 81,000 | ||
The Machining Department supervisor has been very pleased with this performance because actual expenditures for May–July have been significantly less than the monthly static budget of 1,036,000. However, the plant manager believes that the budget should not remain fixed for every month but should “flex” or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows:
| Wages per hour | $16.00 |
| Utility cost per direct labor hour | $1.20 |
| Direct labor hours per unit | 0.50 |
| Planned monthly unit production | 108,000 |
a. Prepare a flexible budget for the actual units produced for May, June, and July in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.
| Hagerstown Company | |||
| Machining Department Budget | |||
| For the Three Months Ending July 31 | |||
| May | June | July | |
| Units of production | 99,000 | 90,000 | 81,000 |
| $ | $ | $ | |
| Total | $ | $ | $ |
| Supporting calculations: | |||
| Units of production | 99,000 | 90,000 | 81,000 |
| Hours per unit | x | x | x |
| Total hours of production | |||
| Wages per hour | x $ | x $ | x $ |
| Total wages | $ | $ | $ |
| Total hours of production | |||
| Utility costs per hour | x $ | x $ | x $ |
| Total utilities | $ | $ | $ |
Feedback
For each level of production, show wages, utilities, and depreciation.
b. Compare the flexible budget with the actual expenditures for the first three months.
| May | June | July | |
| Total flexible budget | $ | $ | $ |
| Actual cost | |||
| Excess of actual cost over budget | $ | $ |
In: Accounting
The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year:
|
Niland Company |
|
|
Wages |
$310,000 |
|
Utilities |
17,000 |
|
Depreciation |
28,000 |
|
Total |
$355,000 |
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
|
Amount Spent |
Units Produced |
|||
|
January |
$334,000 |
71,000 |
||
|
February |
316,000 |
64,000 |
||
|
March |
303,000 |
58,000 |
||
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been significantly less than the monthly static budget of 355,000. However, the plant manager believes that the budget should not remain fixed for every month but should “flex” or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows:
|
Wages per hour |
$20 |
|
Utility cost per direct labor hour |
$1.1 |
|
Direct labor hours per unit |
0.2 |
|
Planned monthly unit production |
77,000 |
a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.
|
Niland Company |
|||
|
Machining Department Budget |
|||
|
For the Three Months Ending March 31 |
|||
|
January |
February |
March |
|
|
Units of production |
71,000 |
64,000 |
58,000 |
|
? |
$ |
$ |
$ |
|
? |
|||
|
? |
|||
|
Total |
$ |
$ |
$ |
|
Supporting calculations: |
|||
|
Units of production |
71,000 |
64,000 |
58,000 |
|
Hours per unit |
x |
x |
x |
|
Total hours of production |
|||
|
Wages per hour |
x $ |
x $ |
x $ |
|
Total wages |
$ |
$ |
$ |
|
Total hours of production |
|||
|
Utility costs per hour |
x $ |
x $ |
x $ |
|
Total utilities |
$ |
$ |
$ |
b. Compare the flexible budget with the actual expenditures for the first three months.
|
January |
February |
March |
|
|
Total flexible budget |
$ |
$ |
$ |
|
Actual cost |
|||
|
Excess of actual cost over budget |
$ |
$ |
$ |
c. What does this comparison suggest?
|
The Machining Department has performed better than originally thought. Yes or No |
|
|
The department is spending more than would be expected. Yes or No |
In: Accounting
Static Budget versus Flexible Budget
The production supervisor of the Machining Department for Niland Company agreed to the following monthly static budget for the upcoming year:
| Niland Company Machining Department Monthly Production Budget |
|
| Wages | $255,000 |
| Utilities | 17,000 |
| Depreciation | 28,000 |
| Total | $300,000 |
The actual amount spent and the actual units produced in the first three months in the Machining Department were as follows:
| Amount Spent | Units Produced | |||
| January | $283,000 | 65,000 | ||
| February | 270,000 | 59,000 | ||
| March | 257,000 | 53,000 | ||
The Machining Department supervisor has been very pleased with this performance because actual expenditures for January–March have been significantly less than the monthly static budget of 300,000. However, the plant manager believes that the budget should not remain fixed for every month but should “flex” or adjust to the volume of work that is produced in the Machining Department. Additional budget information for the Machining Department is as follows:
| Wages per hour | $18 |
| Utility cost per direct labor hour | $1.2 |
| Direct labor hours per unit | 0.2 |
| Planned monthly unit production | 70,000 |
a. Prepare a flexible budget for the actual units produced for January, February, and March in the Machining Department. Assume depreciation is a fixed cost. If required, use per unit amounts carried out to two decimal places.
| Niland Company | |||
| Machining Department Budget | |||
| For the Three Months Ending March 31 | |||
| January | February | March | |
| Units of production | 65,000 | 59,000 | 53,000 |
| $ | $ | $ | |
| Total | $ | $ | $ |
| Supporting calculations: | |||
| Units of production | 65,000 | 59,000 | 53,000 |
| Hours per unit | x | x | x |
| Total hours of production | |||
| Wages per hour | x $ | x $ | x $ |
| Total wages | $ | $ | $ |
| Total hours of production | |||
| Utility costs per hour | x $ | x $ | x $ |
| Total utilities | $ | $ | $ |
b. Compare the flexible budget with the actual expenditures for the first three months.
| January | February | March | |
| Total flexible budget | $ | $ | $ |
| Actual cost | |||
| Excess of actual cost over budget | $ | $ | $ |
What does this comparison suggest?
| The Machining Department has performed better than originally thought. | |
| The department is spending more than would be expected. |
In: Accounting