Question

You currently manufacture imitation Beany Babies. The manufacturing capacity is at 100,000, and the cost is...

You currently manufacture imitation Beany Babies. The manufacturing capacity is at 100,000, and the cost is $3 each. There is a 40% probability that demand will be high, with demand for 250,000 units at a price of $5 each. Otherwise, demand will be low, with maximum sales at 60,000 units at a price of $4 each. You have the option of spending $100,000 to increase production capacity to 300,000 units. Should you increase capacity? How much would you pay for a perfectly accurate forecast of demand? For an 80% accurate forecast? Illustrate your answer using a decision tree.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Sales value with high demand = 250000 * 5 = 1250000

Sales value with low demand = 60000 * 4 = 240000

Expected demand = Probability of high demand * sales value of high demand + probability of low demand * sales value of low demand = 0.4 * 1250000 + 0.6 * 240000 = 644000

Expected demand = 250000 * 0.4 + 60000 * 0.6 = 136000

Manifacturing cost of expected demand = 136000 * 3 = 408000

Profit = Sales value - manufacturing cost = 644000 - 408000 = 236000

The amount of investment is 300000 so yes we should invest in the same as the profit is higher than the expected profit.

with 80% accuracy expected profit = 236000 * 0.8 = 188800

For a perfectly accurate demand we are ready to pay 188800

=================

DEAR STUDENT,

IF YOU HAVE ANY QUERY PLEASE ASK ME IN THE COMMENT BOX,I AM HERE TO HELP YOU.PLEASE GIVE ME POSITIVE RATING..

****************THANK YOU******************

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You currently manufacture imitation Beany Babies. Manufacturing capacity is at 100,000, and cost is at $3...
You currently manufacture imitation Beany Babies. Manufacturing capacity is at 100,000, and cost is at $3 each. There is a 40% probability that demand will be high, with demand for 250,000 units at a price of $5 each. Otherwise demand will be low, with maximum sales at 80,000 units at a price of $4 each. You have the option of spending $100,000 to increase production capacity to 200,000 units. Should you increase capacity? How much would you pay for a...
1. Company currently has the capacity to manufacture 250,000 widgets a year and 100,000 gadgets a...
1. Company currently has the capacity to manufacture 250,000 widgets a year and 100,000 gadgets a year in its factory. Company has the following costs related to manufacturing and selling 200,000 widgets: Scenario 1 Scenario 2 Direct materials and direct labor $840,000 Variable manufacturing overhead $180,000 Rent on equipment only used for the widgets $40,000 Allocated share of depreciation on factory $100,000 Annual salary of widget production manager $70,000 Variable selling costs (commissions) $60,000 Allocated share of fixed selling costs...
A computer server manufacturer currently has capacity and demand of 10,000 servers per year. It is...
A computer server manufacturer currently has capacity and demand of 10,000 servers per year. It is considering two options to increase its capacity. The first option is to add 10,000 units of capacity to the plant, this will incur an annualized (need to pay in each period) fixed cost of 10,000,000 plus 500 labor cost per server. The second option is to outsource the production (anything above the capacity) to an independent manufacturer at a cost of 2,000 for each...
Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves...
Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table: Unit manufacturing costs Variable materials $ 50 Variable labor 75 Variable overhead 25 Fixed overhead 60 Total unit manufacturing costs $ 210 Unit marketing costs Variable 25 Fixed 70 Total unit marketing costs 95 Total unit costs $ 305 Unless otherwise stated, assume that no connection exists between...
Edney Company employs a standard cost system for product costing. The per-unit standard cost of its...
Edney Company employs a standard cost system for product costing. The per-unit standard cost of its product is Raw materials $ 14.50 Direct labor (2 direct labor hours × $8.00 per hour) 16.00 Manufacturing overhead (2 direct labor hours × $11.00 per hour) 22.00 Total standard cost per unit $ 52.50 The manufacturing overhead rate is based on a normal capacity level of 600,000 direct labor hours. (Normal capacity is defined as the level of capacity needed to satisfy average...
Drugs-R-Us, Inc., produces equipment for manufacturing drugs. The costs of manufacturing and marketing this equipment at...
Drugs-R-Us, Inc., produces equipment for manufacturing drugs. The costs of manufacturing and marketing this equipment at the company's normal volume of 3,000 units per month are shown in Exhibit 1.                                                           EXHIBIT 1 - Costs per Unit for Equipment Unit manufacturing costs:             Variable materials                                        $200             Variable labor                                                 300             Variable overhead                                        150             Fixed overhead                                             240                        Total unit manufacturing costs                                 $   890 Unit marketing costs:             Variable                                                        $100             Fixed                                                            280                        Total...
Consider the following selected cost data for the Pittsburgh Forging Company for 2018. Budgeted manufacturing overhead...
Consider the following selected cost data for the Pittsburgh Forging Company for 2018. Budgeted manufacturing overhead costs $7,500,000 Budgeted machine-hours 250,000 Actual manufacturing overhead costs $7,300,000 Actual machine-hours 245,000 The company uses normal costing. Its job-costing system has a single manufacturing overhead cost pool. Costs are allocated to jobs using a budgeted machine-hour rate. 1. Compute the budgeted manufacturing overhead rate. (1pt) 2. Compute the amount of under- or overallocation of manufacturing overhead. Prepare a journal entry to dispose of...
PROBLEM 4 – INCREMENTAL ANALYSIS A.       Hickman Manufacturing produces Product A in batches of 4,000 gallons at...
PROBLEM 4 – INCREMENTAL ANALYSIS A.       Hickman Manufacturing produces Product A in batches of 4,000 gallons at $.90 per gallon. Product A can be sold without further processing for $1.20 per gallon. Product A can be processed further to yield Product B, which can be sold for $1.85 per gallon. Product B requires additional processing costs at $1,650 per batch. Instructions Compute the incremental income or loss from further production of one batch of Product B. B.       Brooks Manufacturers produces can openers....
Project Details The Acme Gadget Company designs and manufactures consumer gadgets. Last year, Acme began development...
Project Details The Acme Gadget Company designs and manufactures consumer gadgets. Last year, Acme began development of three prototype gadgets with the intention of bringing all three to market. However, a recent downturn in the economy has forced Acme to reconsider due to decreased consumer demand that is projected to remain low for 2-3 years. As such, Acme will bring only one of the prototypes to market. They’ve hired a consulting firm to advise which prototype to bring to market....
PLEASE PLEASE ANSWER ASAP. THANK YOU! 1. Consider Derek's budget information: materials to be used, $63,000;...
PLEASE PLEASE ANSWER ASAP. THANK YOU! 1. Consider Derek's budget information: materials to be used, $63,000; direct labor, $198,800; factory overhead, $396,100; work in process inventory on January 1, $187,100; and work in progress inventory on December 31, $197,400. What is the budgeted cost of goods manufactured for the year? a.$647,600 b.$657,900 c.$845,000 6. Use the information for the company below to answer the question that follow. A company is preparing its cash budget. Its cash balance on January 1...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT