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Solution to Unit 7 Homework

Beginning operating assets = Cash + Accounts receivable + Inventory + Plant and equipment, net

Beginning operating assets = $131,000 + $341,000 + $575,000 + $823,000

= $1,870,000

Ending operating assets = Cash + Accounts receivable + Inventory + Plant and equipment, net

Ending operating assets = $138,000 + $472,000 + $482,000 + $818,000

= $1,910,000

Average operating assets = (Beginning operating assets + Ending operating assets) / 2

$ 1,870,000+ $ 1,910,000
Average Operating assets =
2

$1,890,000

Margin = Net operating income / sales

$ 635,040
Margin = ×100
$ 3,969,000

16.00 %

Turnover = Sales / Average operating assets

$ 3,969,000
$ 1,890,000

=2.10

ROI = Margin * Turnover

ROI=16.00×2.10

33.60%

Residual income = Net operating income - (Average invested assets * Hurdle rate)

$635,040−¿)

$332,640

1.Average $1,890,000
operating
assets
2.Margin 16.00%
3.Turnover 2.10
4.ROI 33.60%
5.Residual $332,640
Income

1. To determine whether the Quark Division should accept or reject the $403 price, we need to
compare it to the unit cost of producing an HDTV.

The variable cost per unit of an HDTV is $428, which includes the cost of the screen at $193.
Selling at $403 would result in a contribution margin of only $403 - $428 = -$25 per unit, which
means the Quark Division would incur a loss of $25 for each unit sold. Therefore, the division is
likely to reject the $403 price.

The Quark Division is likely to reject the $403 price because it would result in a loss of $25 per
unit sold.

2
 If the Quark Division rejects the $403 price, the company as a whole would lose the contribution
margin of $150 per unit. However, if the Screen Division can sell screens to outside
manufacturers at $193 each, it would generate a contribution margin of $193 - $123 = $70 per
screen. Therefore, if the company sells 1 screen per HDTV, it would earn a net contribution
margin of $70 per unit, which is greater than the $60 per unit net operating income generated by
the Quark Division. Thus, rejecting the $403 price and selling screens to outside manufacturers
would result in a net financial advantage of $10 per unit for the company as a whole.

If the Quark Division rejects the $403 price and sells screens to outside manufacturers, the
company as a whole would earn a net financial advantage of $10 per unit.

3.

. If the Quark Division accepts the $403 unit price, it would result in a loss of $25 per unit as
calculated in part 1.

However, if the Screen Division sells screens to outside manufacturers, it would generate a
contribution margin of $70 per screen.

If the company sells 1 screen per HDTV, it would earn a net contribution margin of $70 - $25 =
$45 per unit.

This is lower than the $60 per unit net operating income generated by the Quark Division if it
had rejected the $403 price. Therefore, if the Quark Division accepts the $403 unit price, it
would result in a net financial disadvantage of $15 per unit for the company as a whole

If the Quark Division accepts the $403 unit price, the company as a whole would experience a
net financial disadvantage of $15 per unit because the contribution margin would be lower than
if the screens were sold to outside manufacturer
1.

Calculation of the Throughput time

Throughput time=2.8+0.3+0.7+3.8=7.6

Throughput time is 7.6 days

Throughput time, which encompasses both value-added and non-value-added activities, takes
into account several factors such as inspection time, processing time, move time, and queue time
when calculating the overall duration of a process.

2.

Calculation of the Manufacturing Cycle efficiency (MCE)

The Manufacturing cycle efficiency (MCE) is

2.8
7.6

0.3684

=37%
The calculation of manufacturing cycle efficiency involves dividing the time spent on value-
added activities, specifically the processing time, by the total cycle time. The total cycle time,
known as throughput time, encompasses both the time dedicated to value-added activities and
non-valueadded activities.

3. Calculation of the Non-value added throughput time

Non-value added throughput time=(Inspection time +Move time +queue time)/throughput time

0.3+0.7+ 3.8
7.6

=0.6316

=63%

The Non-value added throughput time is 63%

Non-value-added throughput time refers to the duration or time spent on activities that do not
directly contribute to the value creation or enhancement of a product or service.

4. Calculation of the Delivery cycle time

Delivery cycle time=Wait time +Throughput time

15.4+7.6

=23.0

The Delivery cycle time is 23.0 days

The Delivery cycle time encompasses all the activities involved in fulfilling an order, including
order processing, inspection time, wait time ,move time and queue time.

5. Calculation of the New Manufacturing cycle efficiency

The New Manufacturing cycle efficiency is

Value added/New throughput time

 2.8
2.8+0.3+0.7

0.7368

The New Manufacturing cycle efficiency is

73.7%

New throughput time include just Process time , inspection time and move time.

1.Throughput 7.6days
time
2.Manufacturin 37%
g cycle efficiency
3.Non value 63%
added
throughput time
4.Delivery cycle 23.0 days
time
5.New 73.7%
manufacturing
cycle efficiency