1) Compare and contrast the advantages of the contribution approach versus absorption-costing approaches in cost-plus pricing.
2) Surly Company makes small boats. The company produces and sells 5,500 boats per year at a selling price of $160 per boat. Surly Company has excess capacity and is trying to get special orders. A new retailer wants to purchase 1,000 boats for $125 per boat. Surly Company is going to decline the special order because it costs $130 to make a single boat as seen below:
Direct materials $50 per unit
Direct manufacturing labor $55 per unit
Variable manufacturing overhead $10 per unit
Fixed manufacturing overhead $15 per unit
Total $130 per unit
Required:
A) Should Surly Company reject the special order from the new retailer? Why?
B) How much will Surly's net income increase with the special offer?
3)Sealy Company has a joint process, which produces three products called A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year are $20,000. Other relevant data are:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs After Split-Off at Completion
A $94,000 $28,000 $115,000
B 60,000 10,000 82,000
C 66,000 14,000 79,000
Required:
A) Which products should be processed further? Why?
B) If the Sealy Company maximizes profits, what is the operating income?