PE 24-7A Product cost markup percentage
Magna Lighting Inc. and sells lighting fixtures. An entry light has a total cost of $125 per unit, of which $80 is selling and administrative expenses. In addition, the total cost of $125 is made up of $90 variable cost and $35 fixed cost. The desired profit is $55 per unit. Determine the markup percentage on product cost.
EX 24-7 Make-or-buy decision
Jupiter Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $70 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The fully absorbed unit cost to produce comparable cases are expected to be as follows:
Direct materials $45
Direct labor 20
Factory overhead (40% of direct labor) 8
Total cost per unit $73
If Jupiter Computers Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 15% of the direct labor costs.
a. Prepare a differential analysis, dated July 19 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case.
b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them? Explain.
EX 24-11 Sell or process further
Portland Lumber Company incurs a cost of $452 per hundred board feet (hbf) in processing certain "rough-cut" lumber, which it sells for $611 per hbf. An alternative is to produce a "finished cut" at a total processing cost of $559 per hbf, which can be sold for $748 per hbf. Prepare a differential analysis dated June 14 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).
PR 24-2A Differential analysis for machine replacement proposal
Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:
Old Machine
Cost of machine, 10-year life $89,000
Annual depreciation (straight-line) 8,900
Annual manufacturing costs, excluding depreciation 23,600
Annual nonmanufacturing operating expenses 6,100
Annual revenue 74,200
Current estimated selling price of machine 29,700
New Machine
Purchase price of machine, six-year life $119,700
Annual depreciation (straight-line) 19,950
Estimated annual manufacturing costs, excluding depreciation 6,900
Annual nonmanufacturing operation expenses and revenue are not expected to be affected by purchase of the new machine.