ACT 5060 – Accounting for Decision Makers

ACT 5060 – Accounting for Decision MakersHW #4Directions: Answer all five questions. Please submit your work in Word or PDF formatsonly. You can submit an Excel file to support calculations, but please “cut and paste” yoursolutions into the Word or PDF file. Be sure to show how you did your calculations. Also,please be sure to include your name at the top of the first page of your file. You can use anysources you wish, except for other people. Please be sure to document any source you use. Theassignment is due by 9:00 AM on Wednesday, November 19th. Please run spell check andproofread your answers. If you have any questions, please e-mail me at af878@nova.edu orandrew.felo@gmail.com. Good luck!Question #1Consider the following information, prepared based on a monthly capacity of 80,000 units:CategoryVariable manufacturing costsFixed manufacturing costsVariable selling costsFixed selling costsCost per Unit$18$5$4$3Capacity cannot be added in the month and the firm currently sells the product for $33 per unit.Consider each of these scenarios independent of each other.a) The company is currently producing 72,000 units per month. A potential customer hascontacted the firm and offered to purchase 8,000 units this month only. The customer iswilling to pay $28 per unit. Since the potential customer approached the firm, there will be novariable selling costs incurred. Should the company accept the special order? Why or whynot? Be specific.b) Assume the same facts as in part a, except that the company is producing 80,000 units permonth. Should the company accept the special order? Why or why not? Be specific.c) List and describe other factors (not those addressed in parts a and b) that should be taken intoconsideration when deciding whether to accept a special order? Be specific in yourresponses.Question #2Consider the following information, prepared based on monthly production and sales of 20,000units:CategoryVariable manufacturing costsVariable marketing costsCost per Unit$3.00$1.50The firm has total fixed costs of $28,000 and currently sells the product for $6 per unit.a) Assume the company is producing and selling 20,000 units per month. It is consideringan arrangement where an outside manufacturer would produce and ship the productdirectly to customers. Under this arrangement, variable marketing costs would decrease20% per unit and $5,000 in fixed costs would be avoided. What is the maximum amountper unit the company would be willing to pay to the outside manufacturer?b) List and describe other factors that should be taken into consideration when decidingwhether to accept this offer. Be specific in your responses.Question #3A consulting company performs a “basic” market analysis for a client. It incurs costs of $9,000in performing the analysis and plans to sell the report to the client for $17,000. After reviewingthe initial report, the client asks the firm if it is willing to do a more extensive report. The clientoffers to pay $35,000 for a more extensive report. If the more extensive report is done, the clientwill NOT pay the $17,000. If the consulting firm estimates it will require $12,000 in additionalexpenses to complete the more extensive report, should it agree to do the more extensive report?Why or Why not? Be specific in your response.Question #4Assume an engineering company provides services for 3 types of clients. Each service requires adifferent amount of a specific form of specialized labor that is in limited supply. If the companyis limited to 4,000 hours of this specialized labor, how many clients of each type should it acceptin order to maximize operating income?Client TypeRevenue per clientVariable costs per clientSpecialized labor hours required per clientMaximum clients availableABC$1,500$4,000$2,400$700$1,600$1,0002104350400600Question #5a) What is target pricing? Under what specific circumstances can it be most useful? What aresome potential problems with using this approach? Be specific in your responses.b) What is cost-plus pricing? Under what specific circumstances can it be most useful? What aresome potential problems with using this approach? Be specific in your responses.