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Production Cost and Supply Chain

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(TCO B)
Evergreen Corp. has provided the following data:
Sales per period 1,000 units
Selling price $40 per unit
Variable manufacturing cost $12 per unit
Selling expenses $5,100 plus 5% of selling price
Administrative expenses $3,000 plus 20% of selling price

The number of units needed to achieve a target net operating income of $49,500 would be:
1,238 Units
2,750 Units
3,200 Units
2,057 Units

2. All other things the same, which of the following would be true of the contribution margin and variable expenses of a capital-intensive company with fixed costs and low variable costs as compared to a labor-intensive company with low fixed costs and high variable costs? (Points: 8)
Contribution Margin - Higher, Variable Costs - Higher
Contribution Margin - Lower, Variable Costs - Higher
Contribution Margin - Higher, Variable Costs - Lower
Contribution Margin - Lower, Variable Costs - Lower

3. (TCO B) Garth Company sells a single product. If the selling price per unit and the variable expense per unit both increase by 10% and fixed expenses do not change, then: (Points: 8)
Contribution Margin Per Unit - Increases, Contribution Margin Ratio - Increases, Break-Even in Units - Decreases
Contribution Margin Per Unit - No Change, Contribution Margin Ratio - No Change, Break-Even in Units - No Change
Contribution Margin Per Unit - No Change, Contribution Margin Ratio - Increases, Break-Even in Units - No Change
Contribution Margin Per Unit - Increases, Contribution Margin Ratio -No Change, Break-Even in Units - Decreases

4. (TCO B) Korn Company sells two products, as follows:
Selling price Variable expense
per unit per unit
Product Y $120 $ 70
Product Z 500 200
Fixed expenses total $300,000 annually. The expected sales mix in units is 60% for product Y and 40% for product Z. How much is Korn's expected break-even sales in dollars?

$300,000
$420,000
$475,000
$544,0001. (TCO B)

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Hello!
Here are your answers.

Question 1 - Correct answer is D
Let's call X to the number of units sold. We get the following relationship:

Op. Inc. = (40 - 12)X - 5100 - 0.05*40X - 3000 - 0.20*40X
(as you can see, it's just Total Revenues minus Total Costs)

Since we want the Operating Income to be $49,500, we simply solve the equation:

49500 = (40 - 12)X - 5100 - 0.05*40X - 3000 - 0.20*40X
49500 = 38X - 5100 - 2X - 3000 - 8X
49500 = 28X - 8100
X = 2,057.14...

Therefore, 2,057 units are needed.

Question 2 - Correct Answer is C
Clearly, variable costs are lower in a capital-intensive firm than in a labor-intensive firm, as a capital-intensive firm ...

Solution Summary

This solution contains step-by-step calculations to determine the variables of the production cost and supply chain scenarios using concepts of operating income, capital-intensive firm vs. labor-intensive firm, contribution margin, fixed expenses, and breakeven point.

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Supply Chain Management - Question 4

4. Use the spreadsheet provided in the textbook's CD-ROM to answer the following questions on supply chain coordination. We say a supply chain is coordinated if it achieves the global optimal solutiong.

a) For the buy-back contract, the retail DC selects the ordering quantity depending on the buy-back price. Set the manufacturer's selling price to (cellB9) $80. Plot the retail DC's expected profit, manufacturer's profit, and the total supply chain profit as a function of the buy-back price (cell B11). Find, if it exists, a buy-back price that would coordinate this supply chain, and compare profits of the manufacturer and the distributor. If it does not exist, briefly explain.

b) Set the manufacturer's selling price to $70, and repeat the question.

c) For the revenue-sharing contract, the retail DC selects the ordering quantity depending on the whole-sale price and revenue-sharing percentage. Find, if exists, a pair of a whole-sale price (cell B9) and revenue-sharing percentage (cell B11)that would coordinate this supply chain. Can you find another pair?

Please see attachment for spreadsheet.

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