Macro Electronics Manufactures Low-Cost, Consumer-Grade Computers The Average Wage Rate Is $30 Per Hour

question 97

Essay

Macro Electronics manufactures low-cost, consumer-grade computers. It sells these computers to various electronics retailers to market under store brand names. It manufactures two computers, the Lightning 2.0 and the Lightning 2.4, which differ in terms of speed, memory, and hard drive capacity. The following information is available:
$\begin{array}{lrr}&\text { Lightning }&\text { Lightning }\\&2.0&2.4\\\text { Direct materials } & \$ 90 & \$ 110 \\\text { Direct labor } & 60 & 90 \\\text { Variable overhead } & 30 & 30 \\\text { Fixed overhead } & 180 & 240\\\text { Total cost per unit } & \$ 360 & \$ 470 \\\text { Selling price } & 600 & 780 \\\text { Units produced and sold } & 6,000 & 3,000\end{array}$
The average wage rate is $30 per hour. The plant has a capacity of 32,000 direct labor-hours.
Required:
1. A nationwide discount chain has approached Macro with an offer to buy 2,000 Lightning 2.0 computers and 2,000 Lightning 2.4 computers if the unit prices are lowered to $350 and $450, respectively.
a. If Macro accepts the offer, how many direct labor-hours will be required to produce the additional computers?
b. How much will the profit increase (or decrease) if Macro accepts this proposal? All other prices will remain the same.
2. Suppose that the customer has offered instead to buy up to 3,000 each of the two models at $350 and $450, respectively.
a. How many of each product should be manufactured and sold? Assume current demand will not be affected by the special order. Also assume that the company cannot increase its production capacity to meet the extra demand.
b. How much will the profits change if this order is accepted instead?

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Definitions:

Scatter Diagram

A scatter diagram is a graphical representation used to illustrate the relationship between two quantitative variables, helping in identifying patterns or correlations.

Estimated Line of Cost Behavior

An analysis tool used to predict changes in costs relative to changes in business activities and volume, aiding in budgeting and cost management.

Least-Squares Regression Method

A statistical method used to estimate the relationship between variables by minimizing the differences between the observed values and the values predicted by a linear function.

Cost Behavior

The way in which costs change in relation to changes in a firm’s level of activity or volume of production.