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22 August, 19:45

Trusted Products Company makes a household appliance with model number L800. The goal for 2018 is to reduce direct material usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of L800 units the can be produced. The industry market size for appliances increased 15% from 2017 to 2018. The following additional data are available for 2017 and 2018: 2017 2018Units of L800 produced and sold 40000 46000Selling price 320 300Direct materials 99000 97500Direct materials costs per square foot 34 36Manufacturing capacity for L800 units 50000 48400Total conversion costs 1210000 1250000Conversion costs per unit of capacity 25 25What is the cost effect of the growth component for conversion costs?40000 U1600 U40000 F0Throughput contributions equals___Revenues minus manufacturing overheadRevenues minus all direct labor costsRevenues minus all direct material costs of goods sold

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  1. 22 August, 19:54
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    First question:

    What is the cost effect of the growth component for conversion costs?

    Conversion Cost growth component: 0

    Second: Throughput contribution

    Revenues minus all direct material costs of goods sold

    Explanation:

    1st: Q: What is the cost effect of the growth component for conversion costs?

    Givens: 2017 2018

    Manufacturing capacity: 50,000 48,400

    Conversion Cost

    per unit of capacity: 25 25

    As there is capacity for 50,000 units on 2017 there is no additional cost incurred for a capacity of 48,400

    Thus, this makes the grow component effect for conversion cost equal to zero.

    2nd Q: Throughput contribution is the difference between the sales revenue generated and the cost of the materials. It indicates the value added to the raw materials through the manufacturing process That's why his named "throughput contribution"

    There is a difference with the common term "contribution margin" as this takes all variable cost into consideration.
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