Author Question: The asset that a business enterprise creates when it maintains accounts for its charge customers is ... (Read 102 times)

dakota nelson · **on:** Jul 6, 2018

The asset that a business enterprise creates when it maintains accounts for its charge customers is
a. Accounts Payable.
b. Drawing.
c. Accounts Receivable.
d. Capital.
e. none of these.

Question 2

Deciding where to produce.

(CMA, adapted) Portal Corporation produces the same power generator in two Illinois plants, a new plant in Peoria and an older plant in Moline. The following data are available for the two plants.

All fixed costs per unit are calculated based on a normal capacity usage consisting of 240 working days. When the number of working days exceeds 240, overtime charges raise the variable manufacturing costs of additional units by 3.00 per unit in Peoria and 8.00 per unit in Moline.
Portal Corporation is expected to produce and sell 192,000 power generators during the coming year. Wanting to take advantage of the higher operating income per unit at Moline, the company's production manager has decided to manufacture 96,000 units at each plant, resulting in a plan in which Moline operates at maximum capacity (320 units per day 300 days) and Peoria operates at its normal volume (400 units per day 240 days).

Required:
1. Calculate the breakeven point in units for the Peoria plant and for the Moline plant.
2. Calculate the operating income that would result from the production manager's plan to produce 96,000 units at each plant.
3. Determine how the production of 192,000 units should be allocated between the Peoria and Moline plants to maximize operating income for Portal Corporation. Show your calculations.

tuwy · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

C

Answer to Question 2

Peoria Moline
Selling price 150.00 150.00
Variable cost per unit
Manufacturing 72.00 88.00
Marketing and distribution 14.00 86.00 14.00 102.00
Contribution margin per unit (CMU) 64.00 48.00
Fixed costs per unit
Manufacturing 30.00 15.00
Marketing and distribution 19.00 49.00 14.50 29.50
Operating income per unit 15.00 18.50

CMU of normal production (as shown above) 64 48
CMU of overtime production
(64 3; 48 8) 61 40

1.
Annual fixed costs = Fixed cost per unit Daily production rate Normal annual capacity
(49 400 units 240 days;
29.50 320 units 240 days)
4,704,000 2,265,600
Breakeven volume = FC CMU of normal production (4,704,000 64; 2,265,600 48)
73,500 units 47,200 units

2.
Units produced and sold 96,000 96,000
Normal annual volume (units)
(400 240; 320 240) 96,000 76,800
Units over normal volume (needing overtime) 0 19,200
CM from normal production units (normal annual volume CMU normal production)
(96,000 64; 76,800 48) 6,144,000 3,686,400
CM from overtime production units
(0; 19,200 40)
0 768,000
Total contribution margin 6,144,000 4,454,400
Total fixed costs 4,704,000 2,265,600
Operating income 1,440,000
2,188,800
Total operating income 3,628,800

3. The optimal production plan is to produce 120,000 units at the Peoria plant and 72,000 units at the Moline plant. The full capacity of the Peoria plant, 120,000 units (400 units 300 days), should be used because the contribution from these units is higher at all levels of production than is the contribution from units produced at the Moline plant.

Contribution margin per plant:
Peoria, 96,000 64 6,144,000
Peoria 24,000 (64 3) 1,464,000
Moline, 72,000 48 3,456,000
Total contribution margin 11,064,000
Deduct total fixed costs 6,969,600
Operating income 4,094,400

The contribution margin is higher when 120,000 units are produced at the Peoria plant and 72,000 units at the Moline plant. As a result, operating income will also be higher in this case because total fixed costs for the division remain unchanged regardless of the quantity produced at each plant.