Reference no: EM132507401

Problem 1: Galena Corporation produces automobile tires. They have a single factory and own the machinery and equipment used to produce the tires. The total capacity cost is $100,000 per year. Galena's managers estimate that the factory, if run 24 hours per day, every day, could produce 100,000 tires per year. However, given the machinery and equipment need regular maintenance, and employees require holidays, vacation time, and sick time, a more realistic estimate is 80,000 tires per year. Over the past five years, the average demand is 50,000 tires per year. This year, managers anticipate demand of 75,000 tires.

What is the capacity cost per tire if managers use normal capacity as the basis?

Option 1: $2.00 per tire

Option 2: $1.25 per tire

Option 3: $1.00 per tire

Option 4: $1.33 per tire

Problem 2: Rochelle Company is an Internet service provider. They own a large number of servers and other equipment, which costs $200,000 per year. Capacity costs estimates are reported on a per service hour basis. Managers estimate that, on average, the cost per hour demanded is $2.50 per hour. This year, managers estimate that the cost per hour demanded is $2.67 per hour. When managers take into account normal server downtime, the cost per hour supplied is $2.22. Ignoring this normal server downtime, the cost per hour supplied is $2.00.

Based on this information, what is Rochelle Company's theoretical capacity?

Option 1: 90,000 hours

Option 2: 80,000 hours

Option 3: 75,000 hours

Option 4: 100,000 hours

Problem 3: Rockford Incorporated produces two products, Product A and Product B. Product A's selling price and variable costs are $20 and $12 per unit, respectively. Product B's selling price and variable costs are $18 and $11 per unit, respectively. Machine time used to produce both products is constrained. Product A uses 2 hours per unit to produce one unit. Product B uses 1.7 hours per unit to produce one unit.

Given this information, which of the following statements are correct? (Check all that apply.)

1. Managers will prefer to sell Product A because its contribution margin per machine hour is higher.
2. Managers will prefer to sell Product B because it uses less machine time.

Option 1: Product A earns $8 per machine hour.

Option 2: Product B earns $4.12 per machine hour.

Option 3: Product B earns $7 per machine hour.

Option 4: Product A earns $4.00 per machine hour.

Problem 4: Mendota Company produces two products, Product X and Product Y.

1. The selling price and variable costs for Product X are $45 and $24, respectively.
2. The selling price and variable costs for Product Y are $52 and $27, respectively.
3. Both products use two types of labor, from two separate pools of employees: specialized labor employees and general labor employees.
4. For the coming quarter, the specialized labor pool has 17,000 hours available and the general labor pool has 32,000 hours available.
5. Each unit of Product X uses 0.50 hour of specialized labor and 2 hours of general labor, per unit.
6. Each unit of Product Y uses 1 hour of specialized labor and 1.75 hours of general labor, per unit.

Which of the following statements are true?

Option 1: Mendota's most constrained labor type is the specialized labor because both products use up specialized labor before they use up the general labor.

Option 2: Mendota's most constrained labor type is the general labor because both products use up general labor before they use up the specialized labor.

Option 3: None of the above

Option 4: Mendota's most constrained labor type is specialized labor because it has fewer hours available.

Problem 5: El Paso Industries produces two products: the Deluxe model and the Ultimate model.

Information about the Deluxe model is as follows:

Selling price - $14

Direct materials - $5

Direct labor - $7

Labor time required - 1 hour

Machine time required - 2 hours

Information about the Ultimate model is as follows:

Selling price - $25

Direct materials - $8

Direct labor - $14

Labor time required - 2 hours

Machine time required - 3 hours

• El Paso has 2,000 labor hours available during the next period, and 3,000 machine hours.

Which of the following statements are true? (Check all that apply.)

Option 1: Machine time is the most constrained resource.

Option 2: Labor is the most constrained resource.

Option 3: Managers are indifferent between the two products because both earn the same contribution margin per unit.

Option 4: Managers will prefer the Deluxe model because it earns more per unit of the most constrained resource.

Option 5: Managers will prefer the Ultimate model because it earns more per unit of the most constrained resource.