246 Chapter 5
Appendix
Problem 5-31B Allocating scarce resources
Hezing Company makes two products, M and N. Product information follows.
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Product M Product N
Selling price per unit $75 $90
Variable cost per unit 48 55
Required
Identify the product that should be produced or sold under each of the following constraints.
Consider each constraint separately.
a. One unit of Product M requires 3 hours of labor to produce, and one unit of Product N
requires 5 hours of labor to produce. Due to labor constraints, demand is higher than
the company’s capacity to make both products.
b. The products are sold to the public in retail stores. The company has limited floor space
and cannot stock as many products as it would like. Display space is available for only
one of the two products. Expected sales of Product M are 8,000 units, and expected
sales of Product N are 7,000 units.
c. The maximum number of machine hours available is 36,000. Product M uses 6 machine hours,
and Product N uses 10 machine hours. The company can sell all the products it produces.
Problem 5-32B Conflict between short-term and long-term performance
Domino Construction Components, Inc., purchased a machine on January 1, 2006, for
$240,000. The chief engineer estimated the machine’s useful life to be six years and its salvage
value to be zero. The operating cost of this machine is $120,000 per year. By January 1, 2008,
a new machine that requires 30 percent less operating cost than the existing machine has
become available for $180,000; it would have a four-year useful life with zero salvage. The
current market value of the old machine on January 1, 2008, is $100,000, and its book value
is $160,000 on that date. Straight-line depreciation is used for both machines. The company
expects to generate $320,000 of revenue per year from the use of either machine.
Required
a. Recommend whether to replace the old machine on January 1, 2008. Support your answer
with appropriate computations.
b. Prepare income statements for four years (2008 through 2011) assuming that the old machine
is retained.
c. Prepare income statements for four years (2008 through 2011) assuming that the old machine
is replaced.
d. Discuss the potential ethical conflicts that could result from the timing of the loss and
expense recognition reported in the two income statements.
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ANALYZE, THINK, COMMUNICATE
ACT 5-1 Business Application Case Analyzing costs reductions at Dell
On May 31, 2007, Dell Inc. announced it was making several changes to the way it did business
in order “. . . to restore competitiveness to the core business, re-ignite growth, and build solutions
critical to customer needs.” As one of the changes the company:
Initiated a comprehensive review of costs across all processes and organizations from product development
and procurement through service and support delivery with the goal to simplify structure, eliminate
redundancies and better align operating expenses with the current business environment and strategic
growth opportunities. As a part of this overall effort, Dell will reduce headcount by approximately 10 percent
over the next 12 months. The reductions will vary across geographic regions, customer segments, and
functions, and will reflect business considerations as well as local legal requirements.
Case Study: ATC 5-1; Analyzing cost reductions at Dell: CLICK HERE
Case Summary
Type Here Other than the obvious reduction in salary and wages expenses, identify some costs savings Dell might realize by reducing its workforce by 10 percent.
Case Analysis
Type Here Assume some of the workers being terminated are assembly employees and that they are being replaced by new robotic assembly machines. Explain how this might affect Dell’s unit-level, batch-level and facility-level costs.
Executive Decision
Type Here As the CFO responsible for recommending the proposed changes, explain which financial reports include relevant or irrelevant information in making your decisio
gina:
I sent the 2 pages where to find answer on top ok and question bottom please use 2 outside sources
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