MAA262 – Management Accounting Assessment Task 1

Question 6

In order to diversity its product line and meet the needs of different customers, Jonathan wants to propose to Koren and Jingran two new products for Sleep Well Inc., the Ultra-Soft Bed and the Super-Shinny Bed. These new products are the standard bed (with mattress) manufactured by Sleep Well Inc. with some additional work on them. For the Ultra-Soft Bed, an extra layer of mattress is applied, and for the Super-Shinny Bed, no extra layer of mattress is applied but extra shiny bolts are added.

Regarding the Ultra-Soft Bed, attaching another layer of mattress takes an additional 2 hours of direct manufacturing activity (assembly) for each bed; the additional layer of mattress requires 2 square meters of fabrics and 1 kilogram of extra soft foam for each bed. The extra soft foam is 400% more expensive than the foam used for the standard bed and the additional fabrics used for the Ultra-Soft Bed is the same as those applied to the standard beds. Regarding the Super-Shinny bed, adding the extra shiny bolts take an additional 1 hour of assembly for each bed and 10 additional shiny bolts for each bed. These shiny bolts are 200% more expensive than the normal bolts used for the standard product.
Whereas a unit of the standard bed (with mattress) is sold by $900 per unit, Jonathan says the Ultra-Soft Bed could be sold by $1,000 so Sleep Well Inc. would make more money with this new product. However, Jonathan is not sure which price would be appropriate for the Super-Shinny Bed.

Required:

Koren and Jingran are skeptical about the two new fancy beds that Jonathan proposed and have asked you to crunch the numbers and show whether it is worth processing the standard bed into the Ultra-Soft Bed and selling it for $1,000. Koren and Jingran also want to know which is the minimum price Sleep Well Inc. should charge for a Super-Shinny Bed for it being worth processing further from a standard bed. (Sell or process further, Chapter 6, 10 marks)