Exam 13: Differential Analysis: the Key to Decision Making

Elly Industries is a multi-product company that currently manufactures 30,000 units of part MR24 each month for use in production of its products. The facilities now being used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 35,000 units per month. If Elly were to buy part MR24 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40% of their present amount. The variable production costs of Part MR24 are $11 per unit.If Elly Industries continues to use 30,000 units of part MR24 each month, it would realize a financial advantage by purchasing this part from an outside supplier only if the supplier's unit price is less than:

The following information is available on Bruder Incorporated's Product A: The company uses the absorption costing approach to cost-plus pricing described in the text. Based on these data, the total selling and administrative expenses each year are: (Round your intermediate calculations to 2 decimal places.)

Bruce Corporation makes four products in a single facility. These products have the following unit product costs: Additional data concerning these products are listed below. The grinding machines are potentially the constraint in the production facility. A total of 10,500 minutes are available per month on these machines.Direct labor is a variable cost in this company.Which product makes the MOST profitable use of the grinding machines? (Round your intermediate calculations to 2 decimal places.)

Mae Refiners, Incorporated, processes sugar cane that it purchases from farmers. Sugar cane is processed in batches. A batch of sugar cane costs $60 to buy from farmers and $13 to crush in the company's plant. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $29 or processed further for $13 to make the end product industrial fiber that is sold for $61. The cane juice can be sold as is for $40 or processed further for $28 to make the end product molasses that is sold for $67.What is the financial advantage (disadvantage) for the company from processing one batch of sugar cane into the end products industrial fiber and molasses rather than not processing that batch at all?

Part S51 is used in one of Haberkorn Corporation's products. The company makes 12,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce this part and sell it to the company for $37.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $17,000 of these allocated general overhead costs would be avoided.The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be:

The Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier?

Wyler Logistic Solutions Corporation has developed a new forklift-model IM-40-that has been designed to outperform a competitor's best-selling forklift. The competitor's product has a useful life of 40,000 hours of service, has operating costs that average $1.30 per hour, and sells for $139,000. In contrast, model IM-40 has a useful life of 120,000 hours of service and its operating cost is $0.80 per hour. Wyler has not yet established a selling price for model IM-40. Required: From a value-based pricing standpoint what is the differentiation value offered by model IM-40 relative to the competitor's offering for each 120,000 hours of service?

Wenner Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $44 per unit, management projects sales of 10,400 units. The new product would require an investment of $904,000. The desired return on investment is 10%.The desired profit according to the target costing calculations is:

The Wester Corporation produces three products with the following costs and selling prices: The company has insufficient capacity to fulfill all of the demand for these three products.If direct labor hours are the constraint, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is:

Shoun Mechanical Corporation has developed a new industrial grinder-model QJ-47-that has been designed to outperform a competitor's best-selling industrial grinder. Model QJ-47 has a useful life of 120,000 hours of service and its operating cost is $0.60 per hour. In contrast, the competitor's product has a useful life of 30,000 hours of service and has operating costs that average $0.90 per hour. The competitor's industrial grinder sells for $129,000. Shoun has not yet established a selling price for model QJ-47.From a value-based pricing standpoint what range of possible prices should Shoun consider when setting a price for QJ-47?

The management of Woznick Corporation has been concerned for some time with the financial performance of its product V86O and has considered discontinuing it on several occasions. Data from the company's accounting system for this product for last year appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $30,000 of the fixed manufacturing expenses and $13,000 of the fixed selling and administrative expenses are avoidable if product V86O is discontinued.What would be the financial advantage (disadvantage) from dropping product V86O?

A joint product is:

United Industries manufactures a number of products at its highly automated factory. The products are very popular, with demand far exceeding the factory's capacity. To maximize profit, management should rank products based on their:

In value-based pricing, the value of what differentiates a product from the best available alternative is known as the differentiation value.

The management of Musselman Corporation would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing. The company's accounting department has supplied the following estimates for the new product: Management plans to produce and sell 9,000 units of the new product annually. The new product would require an investment of $1,305,000 and has a required return on investment of 10%.The unit target selling price using the absorption costing approach is closest to:

Timdat Corporation, a manufacturer of moderate-priced time pieces, would like to introduce a new electronic watch. To compete effectively, the watch could not be priced at more than $30. The company requires a return on investment of 25% on all new products. The plan is to produce and sell 40,000 watches each year. This would require a $600,000 investment. The target cost per watch would be:

Norgaard Corporation makes 8,000 units of part G25 each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to make and sell the part to the company for $21.20 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $2,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part G25 would be used to make more of one of the company's other products, generating an additional segment margin of $16,000 per year for that product.The annual financial advantage (disadvantage) for the company as a result of buying part G25 from the outside supplier should be:

Kahn Corporation (a multi-product company) produces and sells 8,000 units of Product X each year. Each unit of Product X sells for $10 and has a contribution margin of $6. If Product X is discontinued, $50,000 of the $60,000 in annual fixed costs charged to Product X could be eliminated. The annual financial advantage (disadvantage) for the company of eliminating this product should be:

Kinsley Corporation manufactures numerous products, one of which is called Kappa03. The company has provided the following data about this product: What is the net operating income for product Kappa03 at the current price?

Bohmker Corporation is introducing a new product whose direct materials cost is $25 per unit, direct labor cost is $13 per unit, variable manufacturing overhead is $9 per unit, and variable selling and administrative expense is $4 per unit. The annual fixed manufacturing overhead associated with the product is $18,000 and its annual fixed selling and administrative expense is $9,000. Management plans to produce and sell 1,000 units of the new product annually. The new product would require an investment of $110,500 and has a required return on investment of 10%. Management would like to set the selling price on a new product using the absorption costing approach to cost-plus pricing.Required:a. Determine the unit product cost for the new product.b. Determine the markup percentage on absorption cost for the new product.c. Determine the selling price for the new product using the absorption costing approach.