Question

Kingston Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following information:

Product X Product Y
Required labor time per unit (hours) 2 3
Maximum demand (units) 6,000 8,000
Contribution margin per unit $5 $6
Contribution margin per labor hour $2.50 $2
If Kingston follows proper managerial accounting practices, which of the following production schedules should the company set?
Product A Product B
A. 0 units 8,000 units
B. 1,500 units 8,000 units
C. 6,000 units 0 units
D. 6,000 units 5,000 units
E. 6,000 units 8,000 units
A. Option A.
B. Option B.
C. Option C.
D. Option D.
E. Option E.
The following costs are relevant to the decision situation cited except:____.
a. the cost of hiring a full-time staff attorney, in a decision to establish an in-house legal department or retain the services of a prominent law firm.
b. the remodeling cost of existing office space, in a firm's decision to stay at its current location or move to a new building.
c. the long-term salary costs demanded by Joe Torrez (a superstar) and Rip Moran (an average player) in baseball contract negotiations, in a decision that determines the amounts by which ticket prices must be raised.
d. the cost to enhance an airline's Web site, in a decision to expand existing service to either Salt Lake City or Phoenix.
e. the commissions that could be earned by a salesperson, in a decision that involves salesperson compensation methods (i.e., commissions or flat monthly salaries).

Answer 1

Kingston Manufacturing should produce 6,000 units of Product X and 5,000 units of Product Y (Option D) since this maximizes the contribution margin per labor hour. The cost of hiring a staff attorney is not relevant to this production decision.

Step-by-step explanation:

Optimal Production Schedule and Relevant Costs

To determine the best production schedule for Kingston Manufacturing, they will need to maximize their contribution margin given the labor hours available for producing Products X and Y. The company has 27,000 labor hours available. Product X requires 2 hours and yields a contribution margin of $5 per unit, making the contribution margin per labor hour $2.50. Product Y requires 3 hours and yields a contribution margin of $6 per unit, which results in a contribution margin per labor hour of $2. Since Product X offers a higher contribution margin per labor hour, the company should prioritize its production.

The optimal production schedule is to produce 6,000 units of Product X, utilizing 12,000 labor hours, and then use the remaining 15,000 labor hours to produce 5,000 units of Product Y. This is because we can calculate the units of Product Y by dividing the remaining hours by the hours required per unit (15,000 / 3 = 5,000). Option D is the correct choice, which means the answer to the first part of the question is Option D.

Regarding the second part of the question, the cost of hiring a full-time staff attorney is the only cost not directly relevant to the production decision for Products X and Y. Therefore, the correct option is a. This is because the attorney's cost is not incremental to the production but rather a fixed administrative cost that would be incurred regardless of the production decision.

Answer 2

Answer and Explanation:

In the case when Smith follows proper accounting practice with respect to the managerial accounting so the production schedules should the company set is

Product A Product B

D. 6,000 units 5,000 units

D. Option D

In addition to this,

The costs i.e not relevant for the decision purpose is

D. the cost i.e. incurred for increase a website of an airline in a decision to diversify inherent service to Salt Lake City or Phoenix.