I have attached the course guide. Please review pages 20-23 for specific requirements for Assignment 3.
. Remember…. It actually does not matter how the 300,000 direct labor hours are currently split between the production of Deluxe and Economy stools for the purposes of this exercise. Her request will alter any previously set production schedules.
. Do not waste your time trying to prepare a new annual schedule! He is at full capacity, so all the hours will be utilized in some combination or another. You are only worried about this one moment in time and whether or not he should change his current plans to accommodate your request to in-source the seat cushion.
Here is one way to view the situation:
. Think of the 3 labor parts (half hour each) as being done by 3 different people.
. She is asking him to make 100 seat cushions, so the person who does this task will be pulled off the Deluxe assembly to make her cushions.
. This leaves the other two workers unable to make a Deluxe…. but, their combined efforts are exactly what it takes to make 1 Economy!
. So, instead of making 1 Deluxe stool, he will have his 3 workers make 1 Economy for him + 1 seat cushion for her.
. Your task it to examine this new scenario and determine if the price he quoted is real or if there is some other price that is more accurate.
. The big question is whether or not he can deliver the seat to her at a transfer price less than the $19.00 each quoted by an outside vendor.
More Information for item 1a.
As the assignment’s “conversation” states in the Course Guide, he wants a transfer price to contain all the cost components. She is asking that he revisit his price and consider a Variable Cost approach.
Your spreadsheet or hand-written notes should show whether or not a transfer price can be set that maintains his overall profitability (under the new production plans) and beats the price quoted by an outside vendor.
We could not provide a template without giving away too much of the answer/process to this assignment.
I expect to have a kaltura video from my professor that provides more details on 8/12.