Question

Problem 4-53 (Algo) Special Order (LO 4-1, 2) Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to various car services that can customize them for their locale and business model. It manufactures two systems, the Star100 and the Star150, which differ in terms of capabilities. The following information is available. Costs per Unit Star100 Star150 Direct materials $ 55 $ 65 Direct labor 24 30 Variable overhead 10 15 Fixed overhead 80 110 Total cost per unit $ 169 $ 220 Price $ 280 $ 380 Units sold 4,000 2,000 The average wage rate is $15 per hour. Variable overhead varies with the quantity of direct labor-hours. The plant has a capacity of 20,000 direct labor-hours, but current production uses only 10,400 direct labor-hours. Required: a. A nationwide car-sharing service has offered to buy 2,400 Star100 systems and 2,400 Star150 systems if the price is lowered to $190 and $240, respectively, per unit. a-1. If Unter accepts the offer, how many direct labor-hours will be required to produce the additional systems

Answer 1

Unter Components

If Unter accepts the offer, the direct labor-hours required to produce the additional systems are:

= 8,640 hours.

Step-by-step explanation:

a) Data and Calculations:

Product Lines Star100 Star150

Direct materials $ 55 $ 65

Direct labor 24 30

Variable overhead 10 15

Fixed overhead 80 110

Total cost per unit $ 169 $ 220

Price $ 280 $ 380

Units sold 4,000 2,000

Average wage rate is $15 per hour

Product Lines Star100 Star150

Hours to make one unit 1.6 hours 2 hours ($24/15 and $30/$15)

Special offer by a nationwide car-sharing service:

Systems to buy 2,400 2,400

Offered price $190 $240

Hours to make systems 3,840 4,800

(2,400 *1.6 hours and 2,400 *2 hours)

Total hours required to make both systems = 8,640 hours (3,840 + 4,800)