Exam 11: Differential Analysis: The Key to Decision Making

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 $60.60 per unit.The monthly financial advantage (disadvantage)for the company as a result of accepting this special order should be:

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:

Danny Dolittle makes crafts in his spare time and always sells everything he makes at local craft shows.Danny specializes in four products.Because Danny's time is limited before the next craft show, he is trying to decide how to use his time to the best advantage.Information related to the four products that Danny produces are shown below: Rank the products from the most profitable to the least profitable use of the constrained resource.