Question: Lang Corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The company's chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment's operating activities. The relevant range for the production and sale of the calculators is between 32,000 and 72,000 units per year. Revenue (35,000 units × $12) $ 420,000 Unit-level variable costs Materials cost (35,000 × $3) (105,000) Labor cost (35,000 × $2) (70,000) Manufacturing overhead (35,000 × $0.20) (7,000) Shipping and handling (35,000 × $0.28) (9,800) Sales commissions (35,000 × $2) (70,000) Contribution margin 158,200 Fixed expenses Advertising costs (27,000) Salary of production supervisor (67,000) Allocated companywide facility-level expenses (83,000) Net loss $ (18,800) (Consider each of the requirements independently.)
Required: a-1. A large discount store has approached the owner of Lang about buying 6,000 calculators. It would replace The Math Machine's label with its own logo to avoid affecting Lang's existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $5.70 per calculator. Calculate the contribution margin from the special order.(Negative amount should be indicated by a minus sign.)
CONTRIBUTION MARGIN (LOSS) = ?
a-2. Should Lang accept the special order?
YES?/NO?
b-1. Lang has an opportunity to buy the 35,000 calculators it currently makes from a reliable competing manufacturer for $6.40 each. The product meets Lang's quality standards. Lang could continue to use its own logo, advertising program, and sales force to distribute the products. Should Lang buy the calculators or continue to make them?
BUY?/MAKE?
b-2. Calculate the total cost for Lang to make and buy the 35,000 calculators.
TOTAL COST (MAKE) = ?
TOTAL COST (BUY) = ?
b-3. Should Lang buy the calculators or continue to make them, if the volume of sales were increased to 72,000 units? Buy Make
BUY?/MAKE?
c-1. Calculate the contribution to profit from operating the calculator division. (Negative amount should be indicated by a minus sign.)
Contribution to profit (loss) = ?