Palmateer Industries Makes an Electronic Component in Two Departments, Machining

question 101

Essay

Palmateer Industries makes an electronic component in two departments, Machining and Assembly.The capacity per month is 30,000 units in the Machining Department and 20,000 in the Assembly Department.The only variable cost of the product is the direct material of $100 per unit.All direct material cost is incurred in the Machining Department.All other costs of operating the two departments are fixed costs.Palmateer can sell as many units of this electronic component as it produces at a selling price of $300 per unit.Required:
Assuming any defective unites produced in either department must be scrapped:
a.Compute the loss that occurs if a defective unit is produced in the Machining Department.
b.Compute the loss that occurs if a defective unit is produced in the Assembly Department.
c.How do your answers in parts (a)and (b)relate to the theory of constraints? Explain.

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Definitions:

Firm's Value

Firm's Value represents the total worth of a company, measured by factors such as market capitalization, revenue, profits, and its assets minus liabilities.

Accounting Profit

The net income for a company as calculated according to generally accepted accounting principles (GAAP), taking into account only explicit costs.

Cash Flow

The complete sum of funds being exchanged in and out of a firm, primarily impacting its liquid financial resources.

Depreciation

The reduction in the value of an asset over time, often due to wear and tear.