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Lightning2.

0
Direct materials
Direct Labor
Variable Cost
Fixed overhead
Total cost per unit
Price
Units Sold

Lightning 2.4

$45
$30
$15
$90
$180
$300

$55
$40
$20
$120
$235
$390
2,000

4,000

Hours per unit

1.5

Total hours required

6000

2
4000

Problems: Available with McGraw-Hill's Homework Manager 4-41. Special OrderHi-Speed


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, included memory, and included hard drive
capacity The following information is available: (L.O. 1,2): mhhe.com/lanen2e The average wage rate
is $20 per hour Variable overhead varies with the quantity of direct labor hours The plant has a
capacity of 18,000 direct labor-hours, but current production uses only 10,000 direct laborhours.Required
o a.A nationwide discount chain has offered to buy 2,000 Lightning 2.0 computers and 2,000
Lightning 2.4 computers if the price is lowered to $200 and $250, respectively, per unit If Hi-Speed
accepts the offer, how many direct labor-hours will be required to produce the additional computers?
2000 x 1.5 + 2000 x 2 = 7000 hours will be required.
How much will the profit increase (or decrease) if Hi-Speed accepts this proposal? Prices on regular
sales will remain the same.
2000 x 200 -90 = 220000
2000 x 250-115 = 270000
Total increase will be $490000
o b.Suppose that the nationwide discount chain has offered instead to buy 3,000 each of the two
models at $200 and $250, respectively This customer will purchase the 3,000 units of each model only
in an all-or-nothing deal That is, Hi-Speed Electronics must provide all 3,000 units of each model or
none Hi-Speed's management has decided to fill the entire special order for both models In view of its
capacity constraints, Hi-Speed will reduce sales to regular customers as needed to fill the special order
How much will the profits change if the order is accepted? Assume that the company cannot increase
its production capacity to meet the extra demand.
Total additional hours needed
3000 x 1.5 + 3000 x 2 = 10500
Shortage of 10500-8000 = 2500 hours
Now company will have to reduce the capacity of the current production on the basis of C.M per direct
labor hour

Lighting 2

Lighting 2.4

C.M per unit

210

275

C.M per hour

140

137.5

The production of Lighting 2.4 to be curtailed equal to 2500/2 = 1250 units


The change in profit will be as follows
Increase in Profit
3000 x 200 -90 = 330000
3000 x 250-115 = 405000
Less decrease in profit due to 1250 units
1250 x 275 = -343750
Net change in profit = 330000+405000-343750 =391250

o c.Answer the question in requirement (b), assuming instead that the plant can work overtime Direct
labor costs for the overtime production increase to $30 per hour Variable overhead costs for overtime
production are $5
Total increase due to new order = 330000+405000 = 735000
Less additional cost
2500 x 30 = 75000
2500 x 15 = 37500

-112500

Net change in profit

622500