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Smart Company makes two models of its hair dryer. The copper-winding machine has been the constraint in the factory in the past. The capacity of this machine is 9,600 minutes per month. Data concerning these two products appear below: Standard Premium Selling price 20 29 Variable cost 7 12 Machine time per unit (minutes) 0.73 0.88 Monthly demand (units) 17,569 11,713 Required: 1. Determine if the copper-winding machine is currently a constraint. In other words, does product demand exceed machine capacity? (LO1) 2. Determine the contribution margin per machine minute for each product. (LO1) 3. Assuming the copper-winding machine is a constraint, how many units of each product should be made to maximize net operating income? (LO1) 4. We can increase the quality of copper-winding machine in its premium product line rather considered it as constraint. If we use discretionary cost center method and add $2 R&D variable cost, then what will be new segmented Income statement? (LO4) 5. What is the best pricing method company should use for copper-winding machine? Explain theoretical framework of pricing method in management accounting. (LO3) 6. The following data is given, if the company is going to install new copper-winding machine with the replacement of old machine and 15%. (LO6) New Cooper-winding Old Cooper-winding Annual revenues 131,769 102,487 Annual cash operating costs 43,923 36,603 Net annual cash inflows 87,846 65,885 If Company installed new machine then; Cost 439,230 Productive life 10 years Salvage value 10,249 Replace parts at the end of 6 years 73,205 Salvage of old Cooper Winding. 58,564 a. Calculate net present value (NPV) and internal rate of return (IRR) of two machines. b. Give detailed comments on two results, what company has to do in the given situation. 7. The concept of “Transfer Pricing” promote sustainability at high level for management commitments towards goal achievement, explain in depth how smart company can use this managerial tool in the above situation. (LO 5)

Smart Company makes two models of its hair dryer. The copper-winding machine has been the constraint in the factory in the past. The capacity of this machine is 9,600 minutes per month. Data concerning these two products appear below:

Standard Premium Selling price 20 29 Variable cost 7 12 Machine time per unit (minutes) 0.73 0.88 Monthly demand (units) 17,569 11,713

Required:

1. Determine if the copper-winding machine is currently a constraint. In other words, does product demand exceed machine capacity? (LO1)

2. Determine the contribution margin per machine minute for each product. (LO1)

3. Assuming the copper-winding machine is a constraint, how many units of each product should be made to maximize net operating income? (LO1)

4. We can increase the quality of copper-winding machine in its premium product line rather considered it as constraint. If we use discretionary cost center method and add $2 R&D variable cost, then what will be new segmented Income statement? (LO4)

5. What is the best pricing method company should use for copper-winding machine? Explain theoretical framework of pricing method in management accounting. (LO3)

6. The following data is given, if the company is going to install new copper-winding machine with the replacement of old machine and 15%. (LO6)

New Cooper-winding Old Cooper-winding

Annual revenues 131,769 102,487 Annual cash operating costs 43,923 36,603 Net annual cash inflows 87,846 65,885

If Company installed new machine then;

Cost 439,230 Productive life 10 years Salvage value 10,249 Replace parts at the end of 6 years 73,205 Salvage of old Cooper Winding. 58,564

a. Calculate net present value (NPV) and internal rate of return (IRR) of two machines. b. Give detailed comments on two results, what company has to do in the given situation.

7. The concept of “Transfer Pricing” promote sustainability at high level for management commitments towards goal achievement, explain in depth how smart company can use this managerial tool in the above situation. (LO 5)

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