Essay Final Case Study (Managerial Accounting)

1450 Words 6 Pages
The Case Study should be professional, clear and free of typos and grammar errors.

Storage Systems, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy- duty corrosion- resistant metal drum, called the XSX drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time are avail-able annually on the machine. Since each drum requires 0.8 hours of welding time, annual production is limited to 2,500 drums. At present, the welding machine is used exclusively to make the XSX drums. The accounting department has provided the
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No one had been laid off in over a decade, and for all practical purposes, everyone at the plant is on a monthly salary, everyone classified as direct labor works a reglar 40-hour workweek and overtime has not been necessary since the company adopted just-in-time techniques. Whether the welding machine is used to make drums or frames, the total payroll would be exactly the same. There is enough slack, in the form of idle time, to accommodate any increase in total direct labor time that the mountain bike frames would require.

4. Redo requirements (2) and (3) making the opposite assumption about direct labor from the one you originally made. In other words, if you treated direct labor as a variable cost, redo the analysis treating it as a fixed cost. If you treated direct labor as a fixed cost, redo the analysis treating it as a variable cost.

5. What do you think is the correct way to treat direct labor cost in this situation—as variable or as fixed? Explain.

BUS 207
Yang Zhang

Case Study
1 XSX Drums Mountain Bike Frames Margin per unit $86.45 $2.75 Possible Production* 2,500 10,000 Annual Demand 3,000 3,500 Operating income** 216,125 9,625

*2000/0.8=2500 units; 2000/0.2=10,000 units;
**Margin per unit x available for sale: 86.45x2500=$216,125 2.75x3500=$9,625

Based on the margin of the two products,

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