Preview

Scooter Case Study

Powerful Essays
Open Document
Open Document
910 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Scooter Case Study
Running Head: THE SCOOTER COMPANY CASE STUDY
PART A:
How many units of TEES and ROOS would the company have to produce and sell to the above customer in order to maintain the normal operating income after taxes ($275,000)?

Note: Contribution Margin/Unit = Revenue/Unit – Variable Costs/Unit
In this case, Overhead Costs, Direct Materials, Direct Labor, and Machine Hours are all Variable Costs

TEES:
ROOS:
Revenue/Sales
$95.00/unit
$100.00/unit
Variable Costs:
“B” Coefficient (Production/Overhead Costs)
$1.50/unit
$1.50/unit
Direct Materials:
Material A
$12.00/unit
$6.00/unit

Direct Materials:
Material B
$7.00/unit
$4.00/unit
Direct Labor Hours
$18.20 X 2.5 hours/unit = $45.50/unit
$18.20 X 4.0 hours/unit = $72.80/unit
Machine Hours
$21.40 X 0.6 hours/unit = $12.84/unit
$21.40 X 0.2 hours/unit = $4.28/unit
Total Cost
$78.84/unit
$88.58/unit
Contribution Margin/Unit
$16.16/unit
$11.42/unit

Now that we have determined the Contribution Margin/Unit of the two products called “TEES” and “ROOS” available to produce and sell, we must determine the number of units of “TEES” and “ROOS” using the operating income of $275,000 after taxes (our Fixed Cost)

Note that there is a ratio of 3:7 (TEES: ROOS) and a tax rate of 45%, so factoring it into the weighted average contribution margin:
(3)(16.16) + (7)(11.42) / (3+7) = $12.842

Required Sales = [$375,000 + ($275,000 / (1-0.45)]/$12.842 = 68,135.80 = 68,136 units in total

Sales of TEES = 68,136 X 3/10 = 20,441 units
Sales of ROOS = 68,136 X 7/10 = 47,695 units

Therefore, Scooter Company would need to produce and sell 20,441 units of TEES and 47,695 units of ROOS to the customer in order to maintain the normal operating income after taxes.

PART B:
i) Construct a 95% confidence interval of what operating income could be after taxes if the customer were to order a total of 60,000 units of TEES and ROOS.

y= $375,000 + $1.50 Unit + $18.20 DLH + $21.40 MH

TEES



References: MedCalc. (2013, January 2). Values of the t-distribution (two-tailed). Retrieved January 18, 2013 from http://www.medcalc.org/manual/t-distribution.php

You May Also Find These Documents Helpful

  • Good Essays

    c. What would be the firm’s profit or loss at the following units of production sold: 12,000 units? 15,000 units? 20,000 units?…

    • 687 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Assume that of the sales total, $150,000 relates to sales of warranty contracts. Crow estimates the…

    • 684 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Harriets Hats

    • 760 Words
    • 5 Pages

    Continuing Operations (before-tax) was $225,000 for 20Y1. The company’s tax rate is 30% for all years presented. Following…

    • 760 Words
    • 5 Pages
    Better Essays
  • Satisfactory Essays

    Chpter 6

    • 288 Words
    • 2 Pages

    4. Using the same information above for Aykroyd Corporation, how many units would the company have to sell to attain target profits of $600,000?…

    • 288 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    You and I Will Always Be

    • 558 Words
    • 3 Pages

    If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will:…

    • 558 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for $13.98 each, variable operating costs are $10.48 per CD, and annual fixed operating costs are $73,500.…

    • 1100 Words
    • 5 Pages
    Better Essays
  • Good Essays

    The $600,000 that could not be assigned to specific assets and liabilities is assumed to represent goodwill (the unidentifiable intangible asset), which is not amortized under current GAAP but is reviewed periodically for impairment. In contrast, identifiable intangible assets would be amortized if they have a definite life but not if the life is indefinite in duration. Thus, only if the $600,000 pertained to an identifiable intangible asset with a finite life would amortization be required. We assume that is not the case here.…

    • 1245 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Flexible Budget

    • 923 Words
    • 4 Pages

    * The static budget column in the contribution report is replaced with a flexible budget column.…

    • 923 Words
    • 4 Pages
    Powerful Essays
  • Satisfactory Essays

    Managerial MIdterm

    • 638 Words
    • 3 Pages

    I-way Inc. regards all of its workers as full-time employees and the company has long-…

    • 638 Words
    • 3 Pages
    Satisfactory Essays
  • Powerful Essays

    The selling price of the company's product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be "'uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200. The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory…

    • 867 Words
    • 4 Pages
    Powerful Essays
  • Good Essays

    Accounting Derivatives

    • 2067 Words
    • 9 Pages

    If Donnelly Corporation wishes to earn $22,500 in net operating income for the coming year, the company's sales volume in dollars must be:…

    • 2067 Words
    • 9 Pages
    Good Essays
  • Powerful Essays

    chapter 6 hw

    • 6035 Words
    • 119 Pages

    Chapter 6 Inventory & Cost of Goods Sold Short Exercises (10 min.) S 6-1 Billions Inventory………………………… 3.8 Cash…………………………... 3.8 Accounts Receivable…………. 19.7 Sales Revenue………………. 19.7 Cost of Goods Sold…………… 4.5 Inventory……………………... 4.5 Cash……………………………… 18.8 Accounts Receivable………. 18.8 (10-15 min.)…

    • 6035 Words
    • 119 Pages
    Powerful Essays
  • Satisfactory Essays

    margin of safety

    • 544 Words
    • 6 Pages

    c. To determine the variable and total costs lines, it is necessary to compute the variable cost ratio:…

    • 544 Words
    • 6 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Week 3 worksheet ch

    • 328 Words
    • 2 Pages

    3. Calculate the number of units Northenscold’s must sell to yield a profit of $144,000.…

    • 328 Words
    • 2 Pages
    Satisfactory Essays