1. Grace Greeting Cards Incorporated is starting a new business venture and is in the process of evaluating its product lines. Information for one new product, traditional parchment grade cards, is as follows:
%u2219 For 16 times each year, a new card design will be put into production. Each new design will require $200 in setup costs.
%u2219 The parchment grade card product line incurred $75,000 in development costs and is expected to be produced over the next four years.
%u2219 Direct costs of producing the designs average $0.50 each.
%u2219 Indirect manufacturing costs are estimated at $50,000 per year.
%u2219 Customer service expenses average $0.10 per card.
%u2219 Sales are expected to be 2,500 units of each card design. Each card sells for $3.50.
%u2219 Sales units equal production units each year.
What is the total estimated life-cycle operating income?
2. Jane’s Medical Equipment Company manufactures hospital beds. Its most popular model, Deluxe, sells for $5,000. It has variable costs totaling $2,800 and fixed costs of $1,000 per unit, based on an average production run of 5,000 units. It normally has four production runs a year, with $700,000 in setup costs each time. Plant capacity can handle up to six runs a year for a total of 30,000 beds.A competitor is introducing a new hospital bed similar to Deluxe that will sell for $4,000. Management believes it must lower the price to compete. Marketing believes that the new price will increase sales by 25% a year. The plant manager thinks that production can increase by 25% with the same level of fixed costs. The company sells all the Deluxe beds it can produce. Question 1: What is the annual operating income from Deluxe at the price of $5,000? Question 2: What is the annual operating income from Deluxe if the price is reduced to $4,000 and sales in units increase by 25%?
3. For supply item MT, Bluesky Company has been ordering 150 units based on the recommendation of the salesperson who calls on the company monthly. The company has hired a new purchasing agent, who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units 300
Days used per year 300
Lead time, in days 20
Ordering costs $125
Annual unit carrying costs $25
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.
4. Gardenia Company has the following projected account balances for June 30, 20X9:
Accounts payable $ 60,000 Sales $ 800,000
Accounts receivable $ 100,000 Capital stock $ 400,000
Depreciation, factory $ 36,000 Retained earnings ?
Inventories (5/31 & 6/30) $ 180,000 Cash $ 56,000
Direct materials used $ 200,000 Equipment, net $ 240,000
Office salaries $ 80,000 Buildings, net $ 400,000
Insurance, factory $ 4,000 Utilities, factory $ 16,000
Plant wages $ 140,000 Selling expenses $ 50,000
Bonds payable $ 160,000 Maintenance, factory $ 28,000
Prepare a budgeted income statement AND a budgeted balance sheet as of June 30, 20X9.
5. Novacar Company manufactures automobiles. The red car division sells its red cars for $25,000 each to the general public. The red cars have manufacturing costs of $12,500 each for variable and $5,000 each for fixed costs. The division’s total fixed manufacturing costs are $25,000,000 at the normal volume of 5,000 units.
The blue car division has been unable to meet the demand for its cars this year. It has offered to buy 1,000 cars from the red car division at the full cost of $13,000. The red car division has excess capacity and the 1,000 units can be produced without interfering with the outside sales of 5,000. The 6,000 volume is within the division’s relevant operating range.Explain whether the red car division should accept the offer. Support your decision showing all calculations.