Exam 6: Differential Analysis: The Key to Decision Making

If management decides to buy part R20 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income?

Which of the following are valid reasons for eliminating a product line? I. The product line's contribution margin is negative. II) The product line's traceable fixed costs plus its allocated common corporate costs are less than its contribution margin.

If Dunford has a limit of 30,000 machine hours but no limit on units sold or direct labor hours, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is:

If Talboe chooses to buy the wheel from the outside supplier, then the change in annual net operating income is a:

If N is processed further and then sold, rather than being sold at the split-off point, the change in monthly operating income would be a:

Zollars Cane Products, Inc., processes sugar cane in batches. The company buys a batch of sugar cane from farmers for $70 which is then crushed in the company's plant at a cost of $19. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $21 or processed further for $13 to make the end product industrial fiber that is sold for $42. The cane juice can be sold as is for $44 or processed further for $26 to make the end product molasses that is sold for $88. How much profit (loss) does the company make by processing one batch of sugar cane into the end products industrial fiber and molasses?

If Immanuel accepts this special order, the change in monthly net operating income will be a:

If Varone can expect to sell 32,000 Homs next year through regular channels and the special order is accepted at 15% off the regular selling price, the effect on net operating income next year due to accepting this order would be a:

Kempler Corporation processes sugar cane in batches. The company purchases a batch of sugar cane for $34 from farmers and then crushes the cane in the company's plant at the cost of $15. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $26 or processed further for $17 to make the end product industrial fiber that is sold for $41. The cane juice can be sold as is for $32 or processed further for $22 to make the end product molasses that is sold for $51. Which of the intermediate products should be processed further?

Assume that sufficient constraint time is available to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource?

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

What is the differential cost of Alternative Y over Alternative X, including all of the relevant costs?

Spurrier Corporation produces two intermediate products, A and B, from a common input. Intermediate product A can be further processed into end product X. Intermediate product B can be further processed into end product Y. The common input is purchased in batches that cost $50 each and the cost of processing a batch to produce intermediate products A and B is $15. Intermediate product A can be sold as is for $28 or processed further for $18 to make end product X that is sold for $43. Intermediate product B can be sold as is for $31 or processed further for $24 to make end product Y that is sold for $68. Required: a. Assuming that no other costs are involved in processing potatoes or in selling products, how much money does the company make from processing one batch of the common input into the end products X and Y? Show your work! b. Should each of the intermediate products, A and B, be sold as is or processed further into an end product? Explain.

Vertical integration is the involvement by a company in more than one of the steps from securing basic raw materials to the production and distribution of a finished product.

Cosmo is considering a promotional campaign at the Town Store that would not affect the Mall Store. Increasing annual promotional expenses at the Town Store by $60,000 in order to increase Town Store sales by ten percent would result in a monthly increase (decrease) in Cosmo's operating income of:

Depreciation expense on existing factory equipment is generally relevant to a decision of whether to accept or reject a special offer for a company's product.

A customer has requested that Inga Corporation fill a special order for 2,000 units of product K81 for $25.00 a unit. While the product would be modified slightly for the special order, product K81's normal unit product cost is $19.90: Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product K81 that would increase the variable costs by $1.20 per unit and that would require an investment of $10,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is(are) relevant? I. Cost of direct materials used II) Resale value of Machine X

In addition to the facts given above, assume that the space used to produce part O13 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product. What would be the impact on the company's overall net operating income of buying part O13 from the outside supplier and using the freed space to make more of the other product?

In a sell or process further decision, which of the following costs are relevant? I. A variable production cost incurred prior to the split-off point. II) An avoidable fixed production cost incurred after the split-off point.