Fluty Corporation manufactures a product that has two parts, A and B. It is currently considering two alternative proposals related to these parts.
The first proposal is for buying Part A. This would free up some of the plant space for the manufacture of more of Part B and assembly of the final product. The product vice president believes the additional production of the final product can be sold at the current market price. No other changes in manufacturing would be needed.
The second proposal is for buying new equipment for the production of Part B. The new equipment requires fewer workers and uses less power to operate. The old equipment has a net disposal value of zero.
Required:
Tell whether the following items are relevant or irrelevant for each proposal. Treat each proposal independently.
| a. | Total variable manufacturing overhead, Part A |
| b. | Total variable manufacturing overhead, Part B |
| c. | Cost of old equipment for manufacturing Part B |
| d. | Cost of new equipment for manufacturing Part B |
| e. | Total variable selling and administrative costs |
| f. | Sales revenue of the product |
| g. | Total variable costs of assembling final products |
| h. | Total direct manufacturing materials, Part A |
| i. | Total direct manufacturing materials, Part B |
| j. | Total direct manufacturing labor, Part A |
| k. | Total direct manufacturing labor, Part B |
Plant Parts Diagram
Parts of a bone.
Examples of USP labels Source: Courtesy of Novartis Pharmaceuticals Corporation and Mallinckrodt Pha
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