Cost of Competitive Firm

In Stockholm, there is a competitive market for the production of canopy beds. Max’s canopy bed production firm can make at most six canopy bed’s per week.

Complete the four cost columns in the table above.

If the market price of pianos is $6000 this week, how many canopy beds should Max’s firm produce to maximise profit?

What would Max’s profit be this week? $

Plaid Manufacturing Co. produces two products: G1 and M1. The company uses an activity based costing system. The following are the activities, budgeted total cost and cost drivers per activity for the year 20x9:

Plaid Manufacturing has budgeted to produce 3,000 units of G1. G1 requires 17790 hours of direct labour.

Select one:

a. $510.21

b. $141.31

c. $173.16

d. $140.54

Economic order quantity (EOQ).

​ Tinnendo, Inc. believes it will sell 4 million​ zen-zens, an electronic​ game, this coming year. Note that this figure is for annual sales. The inventory manager plans to order​ zen-zens 50 times over the next year. The carrying cost is ​$0.04 per​ zen-zen per year. The order cost is $513 per order. What are the annual carrying​ cost, the annual ordering​ cost, and the optimal order quantity for the​ zen-zens? Verify your answer by calculating the new total inventory cost.

What is the annual carrying cost for the​ zen-zens?

​( ) $  (Round to the nearest​ dollar.)

James DeWalp is a senior buyer of fruit products for Fresh Foods, a major U.S. multinational food processing company. This company, based in California, uses a wide variety of fruit concentrates, purees, flavors, and extracts in many of its popular food products. One of James's responsibilities is to negotiate annual purchase contracts for these ingredients. One such ingredient, guava puree, is grown and harvested on a seasonal basis in various countries around the world.

James is currently examining the costs associated with using one of his existing suppliers, a Philippine grower/processor. Fresh Foods has used this supplier's high-quality product for a number of years. Farmers grow the product in a remote part of the Philippines and transport it to the processing plant where it is pureed and packaged for transoceanic shipment. This particular variety of guava is highly prized for its flavor, which the aseptic method of processing used by the supplier helps maintain. Unfortunately, guerilla activity by rebels has recently caused some problems for growers in this part of the Philippines.

The supplier aseptically packages the guava puree (currently priced at $0.29/pound, FOB vessel) in foil bags, each containing 50 pounds of product, which workers then place into corrugated boxes. The boxes are stacked on wooden pallets, 40 to a pallet, for loading into overseas containers. Each container holds 20 pallets and arrives via ocean freighter. The ocean freight charge is $2,500 per container. Once the containers reach the U.S. port, a trucking company moves each container to a local warehouse for storage at a charge of $250 per container. U.S. Customs calculates import duties to be 15 percent of the shipment's original purchase price excluding freight charges. Fresh Foods requires one container load per month.

Fresh Foods warehouses each container in a public warehouse until needed for processing (average storage is one month). The monthly storage charge is $6.50 per pallet. In addition, the warehouse charges a one-time in/out fee of $6.25 per pallet to cover administrative costs. Fresh Foods inventory carrying charge is 24 percent, which it applies against the unit price of material in storage at the warehouse (but not in-transit from the Philippines). The reason why the company does not apply the carrying charges to intransit inventory is that Fresh Foods typically does not have to pay the invoice for the guava puree until it reaches the local U.S warehouse. Material planners assume the demand for guava puree to be relatively constant over the year.

When a container of guava puree is required at the plant, a local freight company moves the container from the warehouse, which costs $175 per container. The company estimates that incoming receiving and quality-control procedures cost $4 per pallet. Because of the nature of the product and the distance involved in purchasing and storing the guava puree, the company estimates it incurs a loss of 3 percent of the total puree purchased.

1. Calculate the total cost of guava puree for Fresh Foods per pound, per pallet, and per container. (12 pts / 4 pts per column)

• You do not have to calculate a column for cost of guava per bag/box.

• Make sure you include the cost of spoilage ($25,000 every six months), as well as loss in storage and production.

2. Identify the three (3) biggest cost drivers in your total cost analysis. Provide the percent (%) of the total cost that each of these categories represent. (3 pts)

3. Choose five (5) cost elements from your total cost model and perform a sensitivity analysis on each. (5 pts)

• Perform the sensitivity analysis on each cost element separately to see its impact on total cost.

• Indicate which of the five cost elements you chose had the biggest impact as you vary the costs

4. If you were in charge of managing guava puree for Fresh Foods, what would you do to reduce the total cost to the company? Identify which costs you’d attack first and why. Give some specific ideas on how you'd reduce costs. For instance, if storage is a big cost driver, give me some specific ideas you might consider to reduce storage costs. (12 pts)

5. Every TCO model is incomplete to some extent. So how might you expand your TCO model?

• Describe three additional cost elements that you could build into your current TCO model for guava that would capture relevant costs that have not been considered? (3 pts)

• Copy your original TCO model onto a separate tab in your excel workbook. Then expand your TCO model by adding in the additional costs you described above. Provide a new calculation for the total cost of guava puree per pound, per pallet, and per container with these additional costs. (5 pts)

• What are some strategies that you could put in place to mitigate these risks and/or offset the potential costs involved? (5 pts)

Product engineers calculate the budgeted factory yield of the guava puree when blending into company products is 98 percent; this means the company wastes 2 percent of the product by volume during production, and this is not recoverable.

Occasionally, undetected spoilage of guava puree will require removing the product from grocery shelves. Out-of-pocket costs typically total $25,000 for each incident; these costs are not recoverable from the supplier. The company's records indicate that such an incident occurs about once every six months.

In addition to the other costs noted here, corporate accounting policy requires that cost estimators include a 17 percent assessment on purchased product unit cost to cover general and administrative overhead costs at Fresh Foods.

1. You work for Johnson International. This is the first month of operations. The company designs and manufactures specialty tables. Each table is specially customized for the customer. This month, you have been asked to develop and manufacture two new tables for customers. You will design and build the tables. This is a no nail, no screw, and no glue manufacturing ( no indirect materials used). You will be keeping track of the costs incurred to manufacture the tables using Job #1 Cost Sheet and Job #2 Cost Sheet.
   	The cost of the direct materials that can be used to manufacture the table are as follows. These cost are on a per unit basis.
   		Table Top	$1,301.00
   		Table Leg	$301.00
   		Drawer	$331.00
   	The company uses a job order costing system and applies manufacturing overhead to jobs based on direct labor hours.
   	The company estimates that there will be 12 direct labor hours worked during the month.
   	The estimated manufacturing overhead cost for the month is:
   	a.	Factory supervisor salary per month	$4,000.00
   	b.	Rent for the factory per month	$800.00
   	c.	Depreciation of factory equipment per month	$600.00
   		Total Estimated manufacturing overhead	$5,400.00
   	What is the predetermined manufacturing overhead rate?
   Step 2	The first order you received was to manufacture a table using a table top and four legs. This is your Job #1.
   Step 3	The customer that has ordered Job #2, wants a table that is the same as Job #1, but wants to also add a drawer to the table.
   Step 4	The following is a list of transactions that need to be recorded for the company for activity in the month of December. Record those in the "General Journal" tab of the excel file using the proper format. Please use the following accounts: Accounts Receivables, Raw materials, Work in process, Finished goods, Accumulated depreciation, Accounts payable, Salaries and wages payable, Sales revenue, Manufacturing overhead, Cost of goods sold, Salaries and wages expense, Advertising expenses, and Depreciation expense.
   1-Dec	Raw Materials purchased on account, $13,000.
   5-Dec	All Raw Materials needed for Job #1 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #1 Cost Sheet)
   10-Dec	The following employee costs were incurred but not paid during the month:
   	There are three assembly employees that spend 2 hours each, $35 per hour to make the table for Job #1. (After you journalize this entry please enter the information into Job #1 Cost Sheet)
   	Salary for supervisor of the factory $4,500.
   	Administrative Salary $2,000.
   15-Dec	All Raw Materials needed for Job #2 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
   16-Dec	Rent for the month of December for the factory building incurred but not paid $800.
   17-Dec	Advertising costs incurred but not paid for the month was $1,200.
   20-Dec	Depreciation for the month of December was recorded on equipment was $750 ($150 for equipment used in the factory and the remainder for equipment used in selling and administrative activities).
   22-Dec	Manufacturing overhead cost was applied based on direct labor hours to Job #1 based on the POHR determined on the "Job Cost Sheet". (After you journalize this entry please enter the information into Job #1 Cost Sheet)
   26-Dec	Job #1 was completed and transferred to Finished Goods during the month.
   28-Dec	The completed table from Job #1 was sold on account to the customer for $18,000 during the month. (Hint: Make sure to account for the cost of the table that was sold using the cost from the job cost sheet.)
   31-Dec	Direct labor cost incurred but not paid for three employees to start manufacturing Job #2. The employees only worked one hour each, three hours total, $35 per hour during the month and they did not complete their work on the job. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
   31-Dec	Manufacturing overhead cost was applied based on direct labor hours to Job #2 based on the POHR. Only three direct labor hours were worked on Job #2 during the month. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
   31-Dec	Any underapplied or overapplied overhead for the month was closed out to Cost of Goods Sold.
   Step 5	Post the journal entries that you recorded on the "General Journal" tab to the "T-accounts" tab. This is the company's first month of business, so there will not be any beginning balances. Compute the balance for each T-account after all of the entries have been posted.
   Step 6	Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold on the "Schedule of COGM and COGS" tab for Job #1 and Job #2 that were worked on during the month by the company. Make sure to follow the format noted in your book (pg. 87). (Hint: This is the company's first month of operations and therefore the beginning balances will be zero.)
   Step 7	Prepare an Income Statement for the month using the Traditional Format on the "Income Statement" tab.
   Step 8	Answer the additional questions below
   	Check Figure: Cost of Goods Manufactured= $5,410, Net operating income=$7,390
   	What is the ending balance for raw materials?
   	What is the ending balance for work in process?
   	What is the ending balance for finished goods?
   	What is the actual manufacturing overhead cost incurred during December before adjustment?
   	What is the total applied manufacturing overhead cost during December before adjustment?
   	What is the unadjusted cost of goods sold?
   	Was the manufacturing overhead for the month of December overapplied/underapplied ?
   	What is the amount of Manufacturing overhead overapplied/underapplied?
   	What is the adjusted cost of goods sold?
   	What is gross margin?
   	What is the total prime cost for Job#1?
   	What is the total conversion cost for job #1?
   	What is the total product cost for job#1?
   	What was the period cost incurred for the month of December?
   	What is the total variable cost incurred for Job #1(assume that all selling and administrative cost and all manufacturing overhead costs are fixed.)?
   	What is the contribution margin for Job #1 (assume that all selling and administrative cost and all manufacturing overhead costs are fixed.)?
   	What would be the actual (not applied) total fixed manufacturing overhead cost incurred for the company for the month if the order in Job #1 is for five tables instead of one table assuming this cost is with in the relevant range?