Reference no: EM131527579

Do any 6 Problems

Problem 1 -

Eagle Stores is a retailer of office supplies. The monthly retail demand for a product is provided below from January 2015 to October 2016.

Demand Data	Year	Year
month	2015	2016
January	616	758
February	832	974
March	898	940
April	964	1126
May	880	1032
June	1016	988
July	912	1004
August	828	870
September	894	1056
October	850	1020
November	1010
December	969

a. Use the naïve method to forecast the demand for November and December 2016.

b. Use the moving average method with 4 periods to forecast the demand for November and December 2016.

c. Use the exponential smoothing method with smoothing constant 0.7 to forecast the demand for November and December 2016. Initialize the forecasting method using the actual demand in January 2015.

d. Fit a trend line to the demand data from January 2015 to December 2015. What is the trend line equation?

e. What is the forecasted demand for November and December 2016 if you use this trend line equation?

f. How reliable is this forecast from a statistical perspective?

g. Compute the MAD of the trend line method used in part (d). Use the forecasts from January 2016 to October 2016 to compute the MAD of the method.

h. What is the interpretation of MAD?

i. Explain clearly why it is important to compute and track forecast accuracy.

Problem 2 -

The Global Gourmet Coffee Company (GGCC) is a distributor and processor of different blends of coffee. GGCC currently has 12 different coffees that it offers to gourmet shops in one-pound bags. The major cost is raw materials. There is also a substantial amount of manufacturing overhead in the predominantly automated roasting and packing processes. The company uses relatively little direct labor.

GGCC prices its coffee at full product cost, including allocated overhead, plus a markup of 30 percent. The company competes primarily on the quality of its products, but customers are price-conscious as well. Data for the 2018 budget include manufacturing overhead of $12,000,000, which is allocated based on each product's direct-labor cost. The budgeted direct-labor cost for 2018 totals $1,200,000. Based on the sales budget and raw-material budget, purchases and use of raw materials (coffee beans) will total $5,800,000. The expected prime costs for one-pound bags of two of the company's products are as follows:

	Jamaican	Columbian
Direct material	$2.90	$3.90
Direct labor	.40	.40

An analysis of the 2018 budgeted manufacturing-overhead costs is shown in the following chart.

Activity	Cost driver	Budgeted Activity Level	Budgeted Cost
Purchasing	Purchase Orders	2,316	$2,316,000
Material Handling	Setups	3,600	2,880,000
Quality Control	Batches	1,440	576,000
Roasting	Roasting Hours	192,200	3,844,000
Blending	Blending Hours	67,200	1,344,000
Packaging	Packaging Hours	52,000	1,040,000
Total			$12,000,000

Production data for Jamaican and Colombian coffees in 2018 are as follows:

	Jamaican	Columbian
Budgeted Sales	2,000 lb	100,000 lb
Batch Size	500 lb	20,000 lb
Setups	3 per batch	3 per batch
Purchase Order size	500 lb	50,000 lb
Roasting time	1 hr/200 lb	1 hr/200 lb
Blending time	.5 hr/200 lb	.5 hr/200
Packaging time	.1 hr/200 lb	.1 hr/200 lb

1. Using GGCC's current product-costing system:

a. Determine the company's predetermined overhead rate using direct-labor cost as the single cost driver.

b. Determine the full product costs and selling prices of one pound of Jamaican coffee and one pound of Colombian coffee.

2. Develop a new product cost, using an activity-based costing approach, for one pound of Jamaican coffee and one pound of Colombian coffee.

3. Fully discuss the implications of the activity-based costing system with respect to:

a. The use of direct labor as the sole basis for applying overhead to products?

b. The use of the existing product-costing system as the basis for pricing?

Problem 3 -

Eagle Machines purchases a subcomponent critical for its most popular product from another manufacturer. The annual demand for the subcomponent is 5000 units. The holding cost is assessed at 20% of the price of the subcomponent. The manufacturer of the subcomponent charges Eagle $30 for each unit if Eagle orders less than 200 units and $28 for each unit if Eagle orders 200 units or more. Eagle's cost to place an order is $20.

In responding to the questions below, round off your responses to the nearest unit, number of orders, etc.

a. What is the optimal order quantity for this subcomponent if the EOQ model is used?

b. What is the total of annual relevant costs of Eagle Machines (considering the cost of inventory holding and cost of ordering)?

c. If the EOQ model is used, what is the optimal number of orders to be placed in a year?

d. If the manufacturer's lead time is 1 week and Eagle operates 50 weeks a year, what is the reorder point for the product?

e. What is your interpretation of the reorder point you calculated in part (d)?

Problem 4 -

ABC Corporation makes three different products. Data concerning these products appear below:           

	Product A	Product B	Product C
Sales Volume	200,000	400,000	800,000
Selling Price per unit	$3.30	$3.00	$1.70
Variable costs per unit	$2.50	$1.40	$0.50

Total fixed expenses are $800,000 per year.

The company has no beginning or ending work in process or finished goods inventories.

a. What is the corporation's current operating income?

b. What is the corporation's over-all break-even point in dollar sales?

c. What is the corporation's current operating leverage and what does it imply?

d. Of the total fixed expenses of $800,000, $40,000 could be avoided if Product A is dropped, $160,000 if Product B is dropped, and $120,000 if Product C is dropped. The remaining fixed expenses of $480,000 consist of common fixed expenses such as administrative salaries and rent on the production facility that could be avoided only by going out of business entirely.

i. What is the break-even point in unit sales for each product line?

ii. Should any of these product lines be dropped? Explain why or why not.

iii. If the corporation sells exactly the break-even quantity of each product, what will be the overall profit of the company? Explain this result.

Problem 5 -

The diagram below represents a process where three components are made stations A1, A2, and A3 (one component is made at each station). These components are then assembled at Station B and moved through the rest of the process, where some additional work is completed at stations C and D. One and only one person is allowed to work at each station. The times given below for each station represent the amount of work that needs to be done at that station by that person, with no processing time variation. No inventory is allowed to build in the system.

a) What is the hourly throughput (output) of the process?

b) Which station is the bottleneck?

c) What does it mean for a station to be the bottleneck of a process?

d) What is the flow time of a unit consisting of the three components?

e) What is the cycle time of the process?

f) What is the utilization rate of each worker?

g) Can a service company benefit from process analysis? Explain clearly why or why not.

Problem 6 -

You have been asked as a consultant to assist Lifetime Adventures Company in recovering from a recent computer hacking incident. The company produces a survival kit. Unfortunately, due to the computer hacking incident, only the following data from the standard cost card relating to production of a single survival kit are given below:

	Standard Quantity	Standard Price	Standard cost per kit
Direct material		$6 per yard
Direct labor
Variable production overhead		$3 per direct labor hour
Total

Through interviews with company personnel, you learned variable production overhead is applied to production on the basis of direct labor-hours. During a recent month, 1,000 survival kits were produced and sold. The only other information recovered from the company's database relating to the recent month's production and the related variance analysis is given below.

Variance Analysis	Materials Used	Direct Labor	Variable Production Overhead
Standard Cost for 1,000 kits	$16,800	$10,500	$4,200
Actual costs incurred	$15,000		$3,600
a. Materials Price Variance
Materials Quantity Variance	$1,200
b. Labor Rate Variance
c. Labor Efficiency Variance
d. Variable Overhead Rate Variance
e. Variable Overhead Efficiency Variance

Further interviews with company personnel revealed the following for the recent month's production

Actual Direct Labor Hours Worked: 1,500: Standard variable overhead rate per direct labor hour $3.00.

Difference between the standard and actual cost per kit during the recent month: $.15 Favorable. The company had no beginning or ending inventories of materials. Determine the variances shown in bold in the table above. Show all your work and calculations.

Problem 7 -

The following is the activity list for a project:

Activity	Predecessor	NORMAL DURATION (weeks)	CRASH DURATION (WEEKS)	NORMAL COST	CRASH COST
A	-	3	2	$12,000	$24,000
B	A	5	4	$20,000	$22,000
C	A	4	3	$16,000	$20,000
D	B	6	4	$24,000	$28,000
E	B	5	4	$20,000	$24,000
F	C	7	6	$28,000	$38,000
G	D	3	2	$14,000	$20,000
H	E, F	4	3	$18,000	$30,000

a. Draw an activity on node (AON) diagram to represent the project.

b. Apply the critical path method and determine the following using the normal durations of the activities:

i. The project duration,

ii. The earliest start and finish time of each activity,

iii. The latest start and finish time of each activity,

iv. The slack of each activity,

v. The critical path(s).

c. Which activity or activities should be crashed and in which sequence to reduce the project duration by 2 weeks?

d. What is the resulting total project cost?

e. What is (are) the critical path(s) of the project after crashing?