accounting-The Little Feat Manufacturing Company produces a product

QUESTION

Actg 410

The Little Feat Manufacturing Company
produces a product that is sold as an input to most golf cart
manufacturers. Little Feat has two
production plants that are capable of producing this product. Their original plant, a less automated
facility, is located in Tehachapi. A
newer, more automated facility was built in Tonopah. The two plants produce an identical unit.

The Little Feat Manufacturing Company expects
to produce and sell 192,000 units during the coming year. The Company has given you the following
production data for the upcoming year:

Tehachapi Tonopah
Selling price per unit $ 150.00 $
150.00
Variable manufacturing costs per unit 88.00 72.00
Fixed manufacturing cost per unit 15.00 30.00
Commission (5% of selling price) 7.50 7.50
General & Administrative Expense 21.00 25.50
Profit
per unit produced $ 18.50 $ 15.00

Production rate per day 320 units 400 units

Ø All
fixed costs are based on a normal working year of 240 working days. If the number of working days exceeds 240,
variable manufacturing costs increase by $3.00 per unit in Tonopah and $8.00
per unit in Tehachapi. Each plant has a
capacity of 300 working days.

Ø Little
Feat Manufacturing charges each plant a per unit fee for administrative
services such as payroll, computer support, general accounting, etc. Little Feat considers these services
essential to the work performed at the two plants. The fee is $6.50 per unit and this fee
represents the variable portion of General & Administrative Expense.

Ø In
an effort to maximize profits, Little Feat wants to take advantage of the
higher profit per unit at its Tehachapi plant. The production manager has
decided to manufacture 96,000 units at each plant. The 96,000 units represent capacity at the
Tehachapi plant (300 days) and normal volume (240 days) at the Tonopah
plant. The Company’s CEO does not agree
that this production schedule represents optimal usage of Little Feat’s plants.

Required:

Determine
the annual break-even units for each of Little Feat’s plants.
Calculate
the company-wide operating income earned by Little Feat if the production
manager’s plan is followed (i.e. produce 96,000 units at each plant)
Determine
the optimal production plan to produce the 192,000 units for Little
Feat. Include a calculation of the
company-wide operating income earned by Little Feat.

ANSWER:

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