Q1. Division X has asked Division K of the same company to supply it with 5,300 units of part L433 this year to use in one of its products. Division X has received a bid from an outside supplier for the parts at a price of $29.40 per unit. Division K has the capacity to produce 34,300 units of part L433 per year. Division K expects to sell 30,300 units of part L433 to outside customers this year at a price of $31.00 per unit. To fill the order from Division X, Division K would have to cut back its sales to outside customers. Division K produces part L433 at a variable cost of $26.60 per unit. The cost of packing and shipping the parts for outside customers is $3.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division X.

Required:

a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 5,300 parts this year from Division X to Division K?

b. Is it in the best interests of the overall company for this transfer to take place?

c. What is the increase in Company's profit for each unit transferred?

Q2. Financial data for Windsor, Inc. for last year appear below:

The company paid dividends of $152,000 last year. The "Investment in Pine Company" on the statement of financial position represents an investment in the stock of another company.

Required:

a. Compute the company's margin, turnover, and return on investment for last year.

b. The Board of Directors of Windsor, Inc. has set a minimum required return of 35%. What was the company's residual income last year?

Q3. Thompson Company uses a standard cost system for its single product. The following data are available: Actual experience for the current year:

Purchases of raw materials (11,000 yards at $11.00 per yard) - $121,000

Raw materials used - 11,000 yards

Direct labor costs (10.400 hours at $8.00 per hour) - $ 83,200

Actual variable overhead cost - $ 84,170

Units produced - 12,800 units

Standards per unit of product:

Raw materials - 1.1 yards at $13.00 per yard

Direct labor - .80 hours at $7.50 per hour

Variable overhead - $8.00 per direct labor hour

Required:

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase:

Q4. Jumonville Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 74,000 units per month is as follows:

Direct materials - $ 25.80

Direct labor - $ 3.50

Variable manufacturing overhead - $ 1.10

Fixed manufacturing overhead - $10.30

Variable selling & administrative expense - $1.30

Fixed selling & administrative expense - $ 8.30

The normal selling price of the product is $55.90 per unit.

An order has been received from an overseas customer for 2,400 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.50 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Required:

a. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $50.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

b. Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?

c. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 900 units for regular customers. What would be the minimum acceptable price per unit for the special order?

Q5. Foulds Company makes 12,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

Direct materials                - $13.20

Direct labor - 29.20

Variable manufacturing overhead - 3.20

Fixed manufacturing overhead - 10.20

Unit product cost - $ 46.80

An outside supplier has offered to sell the company all of these parts it needs for $42.50 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $60,000 per year.

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $5.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

Required:

a. How much of the unit product cost of $46.80 is relevant in the decision of whether to make or buy the part?

b. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?

c. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 12,000 units required each year?

Q6. Nutall Corporation is considering dropping product N28X. Data from the company's accounting system appear below:

Sales - $740,000

Variable expense - $341,000

Fixed manufacturing expenses - $257,000

Fixed selling and administrative expense - $205,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $199,500 of the fixed manufacturing expenses and $114,500 of the fixed selling and administrative expenses are avoidable if product N28X is discontinued.

Required:

a. According to the company's accounting system, what is the net operating income earned by product N28X? (Input the amount as a positive value. Omit the 1" sign in your response.)

b-1.What would be the effect on the company's overall net operating income of dropping product N28X?

b-2. Should the product be dropped?