Question

Stanley Burrell founder of a company named Hammer Time Inc. Hammer Time Inc produces specialty functional novelty hammers in the image of Stanley Burrell himself, aka MC Hammer. The three best selling/most popular products sold by Hammer Time Inc. are Hammer Head Hammers, Hammer Pants Hammers, and Please Hammer Don't Hurt Em Mini Hammers.

The sales price per unit of the Hammers are as follows

Head $80

Pants $110

Mini    $25

The COGS are 60% of the current prices: The per unit COGS does not change if the price or volume changes.

The total factory overhead is allocated to each product based on the activities list. Note the total factory overhead does not change. See data sheet as you entered exam.

The total administrative overhead = $14,551,200 and is separate (in addition to) the total factory overhead. It is allocated proportionally using each products cost (COGS) per unit.

1. What is the break-even amount (in units) for each product? (14 points)

2. Briefly explain (supported by numbers) which product does an increase in volume most benefit Hammer Time Inc.? (8 points)

3. Briefly explain (supported by numbers) to which product is an increase in price most beneficial? (8 points)

4. What limitations does Hammer Time Inc. impose on itself because of the way it handles overhead? (6 points)

Exam Data Sheet

Total Factory Overhead is divided into five activities as follows

Activity                  Activity Cost          Activity Base                   Total Usage    

Set-up/Handling         $2,500,000           Process Transfers              1,500 process transfers

Metal Fabrication        $4,100,000            Pounds Processed            500,000 pounds processed

Plastic Fabrication      $1,856,000            Set-ups                             800 set-ups

Assembly                   $2,700,000           Labor Hours                      144,000 labor hours

Finishing                    $1,792,800           Machine Hours                  1,800 machine hours

Activity                            Hammer Head        Hammer Pants                 PH Don’t Hurt’em Mini     

Set-up/Handling                480 Transfers        927 Transfers                  93 Transfers

Metal Fabrication               230,000 lbs            200,066 lbs                      69,934 lbs

Plastic Fabrication               260 Set-ups             417 Set-ups                      123 Set-ups

Assembly                            47,840 labor hrs     83,361 labor hrs                12,799 labor hrs

Finishing                             250 machine hrs     1,400 machine hrs             150 machine hrs

Answer 1

Answer 2. Product "Hammer Pants Hammers" will be more benefit for the organisation as it has the highest contribution per unit i.e. $44. So if there is 1 unit increase in sale the company will earn $44. As Factory overhead and administration overhead are fixed so it will not have an impact in change in sales unit.

Answer 3. Product "Please Hammer Don't Hurt Em Mini Hammers" will be the more beneficial if there is an increase in sales price as the contribution per unit is lowest i.e. $10 as compared to others.

answered by: anonymous