Chapter 1:-

1. Calculating Average Operating Assets, Margin, Turnover, and Return on Investment

East Mullett Manufacturing earned operating income last year as shown in the following income statement:

At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000.

Required:               

For East Mullett Manufacturing, calculate the following:

2. Calculating Residual Income

Pelican Manufacturing earned operating income last year as shown in the following income statement:

At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. Pelican requires a minimum rate of return of 10%.

Required:

For Pelican, calculate:

3. Calculating Economic Value Added

East Mullett Manufacturing earned operating income last year as shown in the following income statement:

Total capital employed equaled $381,000. East Mullett's actual cost of capital is 8 percent.

Required:

Calculate the EVA for East Mullett Manufacturing. If required, round your answer to nearest whole number.

4. Calculating Transfer Price

Trimble Crane, Inc. has a number of divisions, including the Palm Division, a producer of hydraulic pumps, and Acer Division, a manufacturer of motors.

Palm Division produces the h20-model pump that can be used by Acer Division in the production of motors that regulate the raising and lowering of the motors's crane derrick. The market price of the h20-model is $684, and the full cost of the h20-model is $540.

Required:

1.  If Trimble Crane, Inc. has a transfer pricing policy that requires transfer at full cost:

What will the transfer price be?

Do you suppose that Palm Division and Acer Division will choose to transfer at that price?

2.  If Trimble Crane, Inc. has a transfer pricing policy that requires transfer at market price:

What would the transfer price be?

Do you suppose that Palm Division and Acer Division would choose to transfer at that price?

3.  Now suppose that Trimble Crane, Inc. allows negotiated transfer pricing and that Palm Division can avoid $120 of selling expense by selling to Acer Division.

Which division sets the minimum transfer price?
 PALM DIVISION OR ACER DIVISION?

What is the minimum transfer price?

Which division sets the maximum transfer price?
 PALM DIVISION OR ACER DIVISION?

What is the maximum transfer price?

Do you suppose that Palm Division and Acer Division would choose to transfer somewhere in the bargaining range?
YES OR NO?

5. Calculating Cycle Time and Velocity

Delko Company has the following data for one of its manufacturing plants:

1. Maximum units produced in a quarter (3-month period): 250,000 units

2. Actual units produced in a quarter (3-month period): 203,000 units

3. Productive hours in one quarter: 25,000 hours

Required:

1. Compute the theoretical cycle time (in minutes).

2.  Compute the actual cycle time (in minutes). Round your answer to two decimal places.

3.  Compute the theoretical velocity in units per hour.

4.  Compute the actual velocity in units per hour. Round your answer to two decimal places

6. Calculating Manufacturing Cycle Efficiency

Delko Company has the following data for one of its manufacturing plants:

1. Maximum units produced in a quarter (3-month period): 250,000 units

2. Actual units produced in a quarter (3-month period): 193,000 units

3. Productive hours in one quarter: 25,000 hours

4. Actual cycle time: 7.77 minutes

5. Theoretical cycle time: 6 minutes

Required:

1.  Calculate the amount of processing time and the amount of nonprocessing time. If required, round your answers to two decimal places.

2.  Calculate the MCE. If required, round your answer to nearest whole number.

Chapter 2:

1.    Structuring a Make-or-Buy Problem

Fresh Foods, a large restaurant chain, needed to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following:

Fixed overhead will continue whether the ingredient is produced internally or externally. No additional costs of purchasing will be incurred beyond the purchase price. If required, round your answers to the nearest whole number.

Required:

1.  What are the alternatives for Fresh Foods?

BUY THE INGREDIENT EXTERNALLY AND SELL IT IN HOUSE, MAKE THE INGREDIENT IN HOUSE AND SELL IT EXTERNALLY, OR MAKE THE INGREDIENT IN HOUSE OR BUY IT EXTENALLY?

2.  Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)

3.  Now assume that 40% of the fixed overhead can be avoided if the ingredient is purchased externally. Which alternative is more cost effective and by how much? (Use total cost when giving your answer.)

2. Structuring a Special-Order Problem

The Millenium Company has been approached by a new customer with an offer to purchase 10,000 units of its model F80 at a price of $4.10 each. The new customer is geographically separated from the company's other customers, and existing sales would not be affected. Millenium normally produces 75,000 units of F80 per year but only plans to produce and sell 60,000 in the coming year. The normal sales price is $12 per unit. Unit cost information for the normal level of activity is as follows:

Fixed overhead will not be affected by whether or not the special order is accepted.

Required:

1.  Should the company accept or reject the special order?
 ACCEPT OR REJECT?

2.  By how much will operating income increase or decrease if the order is accepted?

Structuring a Keep-or-Drop Product Line Problem

3. Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines:

Orzo's management is deciding whether to keep or drop the parquet product line. Orzo's parquet flooring product line has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant. Relevant fixed costs associated with this line include $30,000 in machine rent and $4,700 in supervision salaries.

Required:

1.  List the alternatives being considered with respect to the parquet flooring line.
 DROP THE PARQUET FLOORING LINE OR KEEP IT, EXPAND THE PARQUET FLOORING LINE, OR NEITHER OF THESE ALTERNATIVES ARE BEING CONSIDERED?

2.  Which alternative is more cost effective and by how much?
 DROP OR KEEP? by $

4.    Structuring a Keep-or-Drop Product Line Problem with Complementary Effects

Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines:

Hickory's parquet flooring product line has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant. Relevant fixed costs associated with this line include $30,000 in machine rent and $5,000 in supervision salaries.

Assume that dropping the parquet product line would reduce sales of the strip line by 22% and sales of the plank line by 20%. All other information remains the same.

Required:

1.  If the parquet product line is dropped, what is the contribution margin for the strip line?

For the plank line?

2.  Which alternative (keep or drop the parquet product line) is now more cost effective and by how much?

5.    Structuring the Sell-or-Process-Further Decision

Jack's Lumber Yard receives 8,000 large trees each period that it subsequently processes into rough logs by stripping off the tree bark and leaves. Jack's then must decide whether to sell its rough logs (for use in log cabin construction) at split-off or to process them further into refined lumber (for use in regular construction framing). Jack's normally sells logs for a per-unit price of $505. Alternately, each log can be processed further into 800 feet of lumber at an additional cost of $0.05 per board foot. Also, lumber can be sold for $0.75 per board foot. (Note: One tree is equal to one rough log.)

Required:

1.  What is the total contribution to income from selling the logs for log cabin construction?

2.  What is the total contribution to income from processing the logs into lumber?

3.  Should Jack's continue to sell the logs or process them further into lumber?
 
JACK'S SHOULD CONTINUE TO SELL THE LOGS OR JACK'S SHOULD PROCESS THE LOGS INTO LUMBER?

6. Determining the Optimal Product Mix with One Constrained Resource

Casual Essentials, Inc. manufactures two types of team shirts, the Homerun and the Goalpost, with unit contribution margins of $4 and $15, respectively. Regardless of type, each team shirts must be fed through a stitching machine to affix the appropriate team logo. The firm leases seven machines that each provides 1,000 hours of machine time per year. Each Homerun shirt requires 6 minutes of machine time, and each Goalpost shirt requires 30 minutes of machine time.

Assume that there are no other constraints.

Required:

If required, round your answers to the nearest whole number. If an amount is zero, enter "0".

1.  What is the contribution margin per hour of machine time for each type of team shirts?

2.  What is the optimal mix of team shirts?

3.  What is the total contribution margin earned for the optimal mix?

7. Determining the Optimal Product Mix with One Constrained Resource and a Sales Constraint

Casual Essentials, Inc. manufactures two types of team shirts, the Homerun and the Goalpost, with unit contribution margins of $5 and $15, respectively. Regardless of type, each team shirts must be fed through a stitching machine to affix the appropriate team logo. The firm leases seven machines that each provides 1,000 hours of machine time per year. Each Homerun shirt requires 6 minutes of machine time, and each Goalpost shirt requires 30 minutes of machine time.

Assume that a maximum of 49,880 units of each team shirts can be sold.

Required:

If required, round your answers to the nearest whole number.

1.  What is the contribution margin per hour of machine time for each type of team shirts?

2.  What is the optimal mix of team shirts?

3.  What is the total contribution margin earned for the optimal mix?

8. Calculating Price by Applying a Markup Percentage to Cost

The J. Escobar Law Firm provides various legal services to organizations. J. Escobar has decided to price its jobs at the total variable costs of the job plus 15.1 percent. The job for a medium-sized dance club client included the following costs:

Required:

Calculate the price charged by The J. Escobar Law Firm to the dance club. If required, round to the nearest dollar.

9. Calculating a Target Cost

RU Listening manufactures cell phones and is developing a new model with a feature (targeted at parents of teens) that prevents the phone from dialing an owner-defined list of phone numbers between the hours of midnight and 6:00 a.m. The new phone model has a target price of $330. Management requires a 10% profit on new product revenues.

Required:

If required, round to the nearest dollar.

1.  Calculate the amount of desired profit.

2.  Calculate the target cost.