Troy Manufacturing Inc. Case

Troy Manufacturing Inc.

General assumptions: 1. Troy can sell all that it wants to sell. 2. Maximum capacity of plant without incurring additional fixed costs is 4,000 units. 3. Nonmanufacturing fixed costs will stay the same unless specified. 4. Nonmanufacturing variable costs are assumed to be marketing cost. a.) In this case: 1. Troy will be able to sell 3,500 units of bikes if selling price is lowered to $900 2. Manufacturing & Nonmanufacturing fixed costs will remain the same.

Revenues Manufacturing Costs Fixed Cost Overhead Variable Costs Materials Labor Overhead Total Manufacturing Costs Nonmanufacturing Costs Fixed Cost Variable Cost Total Nonmanufacturing Costs Operating Income

Status Quo Alternative Difference 3,000,000.00 3,150,000.00

600,000.00 300,000.00 450,000.00 150,000.00 1,500,000.00 300,000.00 300,000.00 600,000.00 900,000.00

600,000.00 350,000.00 525,000.00 175,000.00 1,650,000.00 300,000.00 350,000.00 650,000.00 850,000.00

(50,000.00)

Troy should not sell the bikes for $900 to achieve additional volume of 500 units. b.) In this case: 1. Government will reimburse Manufacturing Variable Costs as well as its share of Manufacturing Fixed Overhead Cost. 2. Government will not pay the selling price of the bike, it would instead pay a fixed amount.

Status Quo Revenues Regular Units Special Order Total Revenues Manufacturing Costs Fixed Cost Overhead Variable Costs Materials Labor Overhead Gov't Reimbursement Fixed Cost Variable Cost Total Manufacturing Costs Nonmanufacturing Costs Fixed Cost Variable Cost Total Nonmanufacturing Costs Operating Income 4,000,000.00 4,000,000.00

Alternative 3,500,000.00 50,000.00 3,550,000.00

Difference

600,000.00 400,000.00 600,000.00 200,000.00

600,000.00 400,000.00 600,000.00 200,000.00 (75,000.00) (150,000.00) 1,575,000.00 300,000.00 350,000.00 650,000.00 1,325,000.00

1,800,000.00 300,000.00 400,000.00 700,000.00 1,500,000.00

(175,000.00)

Troy should not accept the...