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Exam 13: Differential Analysis: the Key to Decision Making

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Question 41

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Marsdon Company has an annual production capacity of 15,000 units. The costs associated with production and sale of the company's product are given below: The company presently is selling 12,000 units annually at a selling price of $28 each. A special order has been received from a distributor who wants to purchase 3,000 units at a special price of $20 each. Regular sales would not be affected by this order and the order could be filled without any impact on total fixed costs. Sales commissions on the special order would be reduced by one-third. Required: Determine whether the company should accept the special order.

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Question 42

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Younes Incorporated manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as P06. Data concerning this product are given below: The above per unit data are based on annual production of 4,000 units of the component. Assume that direct labor is a variable cost.The company has received a special, one-time-only order for 500 units of component P06. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. However, assume that Younes has no excess capacity and this special order would require 30 minutes of the constraining resource, which could be used instead to produce products with a total contribution margin of $10,000. What is the minimum price per unit below which the company should not accept the special order?

A) $67 per unit
B) $103 per unit
C) $20 per unit
D) $83 per unit

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Question 43

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Brissett Corporation makes three products that use the current constraint, which is a particular type of machine. Data concerning those products appear below: Required:a. Rank the products in order of their current profitability from the most profitable to the least profitable. In other words, rank the products in the order in which they should be emphasized.b. Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? (Round your answer to 2 decimal places.)

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 11% rate of return on investment (ROI) , the required markup on absorption cost for Product A would be closest to:

Future costs that do not differ between the alternatives in a decision are avoidable costs.

Wehrs Corporation has received a request for a special order of 6,000 units of product K19 for $32.30 each. The normal selling price of this product is $33.45 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product K19 is computed as follows: Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product K19 that would increase the variable costs by $4.90 per unit and that would require a one-time investment of $23,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.Required:Determine the effect on the company's total net operating income of accepting the special order.

Penagos Corporation is presently making part Z43 that is used in one of its products. A total of 5,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce and sell the part to the company for $20.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided.In addition to the facts given above, assume that the space used to produce part Z43 could be used to make more of one of the company's other products, generating an additional segment margin of $24,000 per year for that product. What would be the annual financial advantage (disadvantage) of buying part Z43 from the outside supplier and using the freed space to make more of the other product?

Hoder Corporation manufactures numerous products, one of which is called Gamma45. The company has provided the following data about this product: Assume that the total traceable fixed expense does not change. How many units of product Gamma45 would Hoder need to sell at a price of $38.95 to earn the same net operating income that it currently earns at a price of $41.00? (Round your answer up to the nearest whole number.)

Consistency demands that a cost that is relevant in one decision be regarded as relevant in other decisions as well.

Montecalvo Logistic Solutions Corporation has developed a new forklift-model PI-28-that has been designed to outperform a competitor's best-selling forklift. The competitor's product has a useful life of 10,000 hours of service, has operating costs that average $9.70 per hour, and sells for $139,000. In contrast, model PI-28 has a useful life of 20,000 hours of service and its operating cost is $5.50 per hour. Montecalvo has not yet established a selling price for model PI-28.From a value-based pricing standpoint what is the differentiation value offered by PI-28 relative to the competitor's offering for each 20,000 hours of service?

Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $53 to buy from farmers and $18 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $25 or processed further for $18 to make the end product industrial fiber that is sold for $39. The beet juice can be sold as is for $32 or processed further for $28 to make the end product refined sugar that is sold for $79.What is the financial advantage (disadvantage) for the company from processing one batch of sugar beets into the end products industrial fiber and refined sugar rather than not processing that batch at all?

Faustina Chemical Corporation manufactures three chemicals (TX14, NJ35, and KS63) from a joint process. The three chemicals are in industrial grade form at the split-off point. They can either be sold at that point or processed further into premium grade. Costs related to each batch of this chemical process is as follows: For which product(s) above would it be more profitable for Faustina to sell at the split-off point rather than process further?

Eastwood Corporation manufactures numerous products, one of which is called Beta-96. The company has provided the following data about this product: Management is considering decreasing the price of Beta-96 by 8%, from $88.00 to $80.96. The company's marketing managers estimate that this price reduction would increase unit sales by 8%, from 86,000 units to 92,880 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Beta-96 earn at a price of $80.96 if this sales forecast is correct?

Hodge Incorporated has some material that originally cost $74,600. The material has a scrap value of $57,400 as is, but if reworked at a cost of $1,500, it could be sold for $54,400. What would be the financial advantage (disadvantage) of reworking and selling the material rather than selling it as is as scrap?

Variable costs are always relevant costs in decisions.

Costs that can be eliminated in whole or in part if a particular business segment is discontinued are called:

Quamma Corporation makes a product that has the following costs: The company uses the absorption costing approach to cost-plus pricing as described in the text. The pricing calculations are based on budgeted production and sales of 39,000 units per year.The company has invested $640,000 in this product and expects a return on investment of 9%.Required:a. Compute the markup on absorption cost. (Round your intermediate and final answer to 2 decimal places.)b. Compute the selling price of the product using the absorption costing approach. (Round your intermediate and final answer to 2 decimal places.)

Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop. Aunt Joop purchased the car 40 years ago for $8,000. Cybil is either going to sell the car for $10,000 or have it restored and then sell it for $22,000. The restoration will cost $9,000. Cybil would be financially better off by:

Ralph Plastics Equipment Corporation has developed a new injection mold-model IX-94-that has been designed to outperform a competitor's best-selling injection mold. Model IX-94 has a useful life of 50,000 hours of service and its operating cost is $2.00 per hour. In contrast, the competitor's product has a useful life of 10,000 hours of service and has operating costs that average $3.50 per hour. The competitor's injection mold sells for $129,000. Ralph has not yet established a selling price for model IX-94. Required: From a value-based pricing standpoint what is model IX-94's economic value to the customer over its 50,000 hour useful life?

Woodridge Corporation manufactures numerous products, one of which is called Alpha32. The company has provided the following data about this product: Management is considering increasing the price of Alpha32 by 4%, from $99.00 to $102.96. The company's marketing managers estimate that this price hike would decrease unit sales by 5%, from 90,000 units to 85,500 units. Assuming that the total traceable fixed expense does not change, what net operating income will product Alpha32 earn at a price of $102.96 if this sales forecast is correct?