Accounting:
Problems - Short-Run Decision Making. Complete the marginal analysis required on each problem. Make sure to support your decisions with "calculations, show your work on the spreadsheet and CITE References."
Question 1:
Cans Inc. is considering purchasing component YY instead if producing it in-house. Component YY can be purchased for $207.
The following cost information pertains to the production of component YY. Cans Inc. uses 75,000 compenents per year.
| Direct Materials |
$100.80 |
| Direct Labor (10 minutes per part) |
| ($18 per hour) |
$3 |
| Variable OH |
$4.60 |
| Fixed OH |
$234,000 |
| Depreciation |
$32,420 |
Prepare an incremental analysis to determine if component YY should continue to be produced in-house or purchased from an outside vendor.
What are some qualitative considerations Cans Inc. should make?
Question 2:
Sports R Us produces basketballs. Recently the local in-house team contacted them about purchasing 2,000 basketballs and has agreed to pay $18 per ball plus $3 per ball for shipping. The current year's production is 22,000 basketballs and total capacity is 25,000 balls. The following costs pertain to the production of basketballs.
| Direct Materials |
$9.20 |
| Direct Labor |
$4.00 |
| VOH |
$3.80 |
| FOH |
$4 |
| Cost per ball |
$20.64 |
Prepare an incremental analysis. Should Sports R Us accept the special Order? Why?
Question 3:
The following information pertains to Utility Products Inc.:
|
Brooms |
Mops |
Total |
| Sales |
$600,000 |
$400,000 |
$1,000,000 |
| Variable Costs |
420,000 |
180,000 |
600,000 |
| Contribution Margin |
$180,000 |
$220,000 |
$400,000 |
| Less Direct fixed costs |
50,000 |
150,000 |
200,000 |
| Segment margin |
$130,000 |
$70,000 |
$200,000 |
| allocated Common Costs |
40,000 |
80,000 |
120,000 |
| Net Income |
$90,000 |
$(10,000) |
$80,000 |
Since the Mops division is operating at a loss should it be dropped? Why?
If the Mops division is dropped what will happen to the profits of Utility Products? Support your answer with computations.
Question 4:
Pork Processors Co. is considering offering three new pork products. The relevant cost data for the products follows:
| Product |
Sales Revenue if sold at split-off |
Sales Revenue if Processed Further |
Further Processing costs |
| Chops |
$100,000 |
$200,000 |
$80,000 |
| Head |
20000 |
40000 |
25000 |
| Belly |
50000 |
60000 |
5000 |
The chops can be brined and smoked and sold as breakfast steaks. The belly can be smoked and sold as bacon and the head can be boiled and sold as head cheese. Which of these products should be processed further and which should be sold at the split-off point. Support your decisions with calculations.
Question 5:
Zeke Co. manufactures two products that both require labor and machining.There is unlimited demand for these products. Unit sales and cost data and processing requirements follow:
|
Product A |
Product B |
| Selling Price |
$75 |
$200 |
| Variable costs |
$25 |
$80 |
| Machine hours required |
0.4 |
1.2 |
| Labor hours required |
2 |
6 |
The company is limited to 160,000 machine hours and 120,000 labor hours. Fixed costs are $1,000,000. What is the most profitable mix of products to produce? Explain your answer.