Q1. Lallone Company makes fine jewelry that it sells to department stores throughout the United States. Lallone is trying to decide which of two bracelets to manufacture. Cost data pertaining to the two choices follow.
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Bracelet A
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Bracelet B
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Cost of materials per unit
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$26
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$42
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Cost of labor per unit
|
32
|
32
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Advertising cost per year
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9.700
|
7,700
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|
Annual depreciation on existing equip.
|
5,000
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6.000
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Required - Identify the avoidable costs and determine the amount of avoidable cost for each product.
Q2. Ramos Corporation is considering the elimination of one of its segments. The segment incurs the following fixed costs. If the segment is eliminated, the building it uses will be sold.
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Advertising expense
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$ 88,000
|
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Supervisory salaries
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173,000
|
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Allocation of companywide facility-level costs
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64.000
|
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Original cost of building
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119.000
|
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Book value of building
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67.000
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|
Market value of building
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84.000
|
|
Maintenance costs on equipment
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73.000
|
|
Real estate taxes on building
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14,000
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Required - Based on this information, determine the amount of avoidable cost associated with the segment?
Q3. Bennett Construction Company is a building contractor specializing in small commercial buildings. The company has the opportunity to accept one of two jobs; it cannot accept both because they must be performed at the same time and Bennett does not have the necessary labor force for both jobs. Indeed, it will be necessary to hire a new supervisor if either job is accepted. Furthermore, additional insurance will be required if either job is accepted. The revenue and costs associated with each job follow.
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Cost Category
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Job A
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Job B
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Contract price
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$808,000
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$694,000
|
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Unit-level materials
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244,500
|
224,350
|
|
Unit-level labor
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251,050
|
306,900
|
|
Unit-level overhead
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19,000
|
13,700
|
|
Supervisor's salary
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114,870
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114,870
|
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Rental equipment costs
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25,700
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28,300
|
|
Depreciation on tools (zero market value)
|
20,800
|
20,800
|
|
Allocated portion of companywide facility-sustaining costs
|
11,000
|
9,900
|
|
Insurance cost for job
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17,300
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17,300
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a. Calculate the contribution to profit from Job A and Job B.
b. Assume that Job A is no longer available. Bennett's choice is to accept or reject Job B alone. Calculate the contribution to profit from Job B.
Q4. Levy Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 3,500 units. Levy made 35,000 blankets during the prior accounting period. The cost of producing the blankets is summarized as follows.
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Materials cost ($28 per unit × 35,000)
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$980,000
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Labor cost ($26 per unit × 35,000)
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910,000
|
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Manufacturing supplies ($4 × 35,000)
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140,000
|
|
Batch-level costs (10 batches at $7,000 per batch)
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70,000
|
|
Product-level costs
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220,000
|
|
Facility-level costs
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320,000
|
|
Total costs
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$2,640,000
|
|
Cost per unit = $2,640,000 ÷ 35,000 = $75.43
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a- Rios Motels has offered to buy a batch of 500 blankets for $64 each. Levy's normal selling price is $93 per unit, calculate the relevant cost per unit for the special order. Should Levy Accept?
b- Rios offered to buy a batch of 3,500 blankets for $64 per unit, calculate the relevant cost per unit for the special order. Should Levy accept the special order?
Q5. Niklos Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store. In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow.
Required - Prepare the income statement for the company ax the whole without the children's department.
Q6. Niklos Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of the children's department has three employees. All departments are housed in a single store. In recent years, the children's department has operated at a net loss and is expected to continue to do so. Last year's income statements follow.
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Cost of materials (13,400 Units × $20)
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$268,000
|
|
Labor (13,400 Units × $26)
|
348,400
|
|
Depreciation on manufacturing equipment*
|
41,000
|
|
Salary of supervisor of engine production
|
67,000
|
|
Rental cost of equipment used to make engines
|
23,000
|
|
Allocated portion of corporate-level facility-sustaining costs
|
87,000
|
|
Total cost to make 13,400 engines
|
$834,400
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*The equipment has a book value of $107,000 but its market value is zero.
a. Determine the maximum price per unit that Rimes would be willing to pay for the engines.
b. Determine the maximum price per unit that Rimes would be willing to pay for the engines, if production increased to 18,300 units?