problems 1 robin offers christmas tree decorating services six days per week during 4313385

problems 1 robin offers christmas tree decorating services six days per week during 4313385

Problems1.Robin offers Christmas tree decorating services six days per week during late November and December.  She charges $50 per live tree regardless of the size of the tree.  Robin’s clients provide all the decorations.   Her variable cost, solution to keep the tree fresh, is $10 per tree and the fixed costs per month total $100.  Robin has had more calls by the end of October than she had expected and is considering hiring a helper.  She will pay the helper $8 per hour.  Robin estimates that she can decorate 8 trees in a 10-hour day (before hiring a helper) during the holiday season (25 days.)

Required:

a.Does Robin’s decision deal with excess supply or excess demand?

b.If Robin decides not to hire a helper, list three alternatives she should consider.

c.List three long-term effects of Robin’s decision alternative courses of action.

2.Trisha Hardin owns Ice Flavors, a small business selling fruit-flavored slush drinks.  Each drink sells for $2.50.  Trisha derived her price as follows:

Drink mixture and crushed ice

$0.60

Labor per drink ($8 per hour ÷ 20 drinks per hour)

$0.40

Variable overhead per drink (cups, etc)

$0.35

Fixed overhead  per drink

$0.40

Total cost per drink

$1.75

Trisha is considering a special order for a sale of 100 drinks for a local birthday party.  The hostess is willing to pay $1.50 per drink.  The party will be in the evening, which is not during Trisha’s regular business hours.  Trisha will provide the drink mixture, ice and labor.  Her only additional expense will be one employee for two hours ($8 per hour), travel to and from the party location (estimated to be $15).  Since the party is not at Trisha’s business, her fixed overhead will not change.  The party hostess will furnish all cups, napkins and other variable cost items.

Required:

a. What is the incremental cost associated with accepting the special order?

b.List the costs that are not relevant to the decision.

c.Should Trisha accept the special order?  Why?

3.Outdoor Flames manufactures 5,000 outdoor gas fireplaces each period.  The company has been manufacturing the ignition system for the fireplaces.  The unit cost of each ignition is as follows:

Direct Material

$12

Direct Labor

5

Variable manufacturing overhead

2

Fixed manufacturing overhead

14

Unit product cost

$33

A local supplier has offered to sell the company the ignition system for $30 each.  If the ignition systems are purchased from the outside supplier, the facilities now being used to make them can be used to make other units of a product that is in high demand.  The additional contribution margin on the other unit would be $42,000 per year.  If the ignition systems are purchased from an outside supplier, all the direct labor would be avoided, but $8 of the fixed cost would continue and be applied to the remaining products even if the part is purchased.

Required:

a.How much of the unit product cost of $33 is relevant to the decision to make or buy the ignition systems?

b.What is the net total dollar advantage or disadvantage of purchasing the ignition systems rather than making them?

c.List three qualitative characteristics that the owner of Outdoor Flames should consider in looking at the long-term effect of purchasing the ignition systems.

 

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