Exam 6: Differential Analysis: the Key to Decision Making

A customer has asked Goes Corporation to supply 6, 000 units of product Y19, with some modifications, for $31.30 each.The normal selling price of this product is $46.50 each.The normal unit product cost of product Y19 is computed as follows: 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 some modifications made to product Y19 that would increase the variable costs by $8.90 per unit and that would require a one-time investment of $20, 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. Required: Determine the effect on the company's total net operating income of accepting the special order.Show your work!

Pilgrim Corporation makes a range of products.The company's predetermined overhead rate is $23 per direct labor-hour, which was calculated using the following budgeted data: Management is considering a special order for 800 units of product N89E at $69 each.The normal selling price of product N89E is $88 and the unit product cost is determined as follows: If the special order were accepted, normal sales of this and other products would not be affected.The company has ample excess capacity to produce the additional units.Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order. Required: If the special order were accepted, what would be the impact on the company's overall profit?

Consider the following production and cost data for two products, L and C: The company can only perform 65, 000 machine set-ups each period due to limited skilled labor and there is unlimited demand for each product.What is the largest possible total contribution margin that can be realized each period?

Tawstir Corporation has 800 obsolete personal computers that are carried in inventory at a total cost of $1, 100, 000.If these computers are upgraded at a total cost of $40, 000, they can be sold for a total of $750, 000.As an alternative, the computers can be sold in their present condition for $690, 000. The sunk cost in this situation is:

Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce.Gwinnett has the capacity to manufacture and sell 10, 000 cases of sauce each year but is currently only manufacturing and selling 9, 000.The following costs relate to annual operations at 9, 000 cases: Gwinnett normally sells its sauce for $30 per case.A local school district is interested in purchasing Gwinnett's excess capacity of 1, 000 cases of sauce but only if they can get the sauce for $15 per case.This special order would not affect regular sales or total fixed costs or variable costs per unit.If this special order is accepted, Gwinnett's profits for the year will:

Tawstir Corporation has 800 obsolete personal computers that are carried in inventory at a total cost of $1, 100, 000.If these computers are upgraded at a total cost of $40, 000, they can be sold for a total of $750, 000.As an alternative, the computers can be sold in their present condition for $690, 000. Suppose the selling price of the upgraded computers has not been set.At what selling price per unit would the company be as well off upgrading the computers as if it just sold the computers in their present condition?

Holt Company makes three products in a single facility.Data concerning these products follow: The mixing machines are potentially the constraint in the production facility.A total of 25, 800 minutes are available per month on these machines. Direct labor is a variable cost in this company. Required: a.How many minutes of mixing machine time would be required to satisfy demand for all three products? b.How much of each product should be produced to maximize net operating income? (Round off to the nearest whole unit. ) c.Up to how much should the company be willing to pay for one additional hour of mixing machine time if the company has made the best use of the existing mixing machine capacity? (Round off to the nearest whole cent. )

The following are the Jensen Corporation's unit costs of making and selling an item at its capacity of 1, 000 units per month: Present sales amount to 700 units per month.Fixed costs, both manufacturing and selling and administrative, are constant within the relevant range between 700 units and 1, 000 units.Direct labor is a variable cost. Assume the company has 50 units left over from last year which have small defects and which will have to be sold at a reduced price.The sale of these defective units will have no effect on the company's other sales.Which of the following costs may be relevant in this decision?

Roddey Corporation is a specialty component manufacturer with idle capacity.Management would like to use its extra capacity to generate additional profits.A potential customer has offered to buy 2, 900 units of component GEE.Each unit of GEE requires 3 units of material R39 and 8 units of material I59.Data concerning these two materials follow: Material R39 is in use in many of the company's products and is routinely replenished.Material I59 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up. What would be the relevant cost of the materials, in total, for purposes of determining a minimum acceptable price for the order for product GEE?

Two or more products produced from a common input are called:

Two alternatives, code-named X and Y, are under consideration at Brahler Corporation.Costs associated with the alternatives are listed below. What is the differential cost of Alternative Y over Alternative X, including all of the relevant costs?

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

The split-off point in a process that produces joint products is the point in the manufacturing process at which the joint products are sent to separate customers.

Dowchow Corporation makes two products from a common input.Joint processing costs up to the split-off point total $38, 400 a year.The company allocates these costs to the joint products on the basis of their total sales values at the split-off point.Each product may be sold at the split-off point or processed further.Data concerning these products appear below: What is the net monetary advantage (disadvantage)of processing Product Y beyond the split-off point?

Kampmann Corporation is presently making part Z95 that is used in one of its products.A total of 5, 000 units of this part are produced and used every 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 make and sell the part to the company for $24.10 each.If this offer is accepted, the supervisor's salary and all of the variable costs 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, none of which would be avoided if the part were purchased instead of produced internally.If management decides to buy part Z95 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?

The Talbot Corporation makes wheels that it uses in the production of bicycles.Talbot's costs to produce 100, 000 wheels annually are: An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel.If the wheels are purchased from the outside supplier, $15, 000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45, 000 per year.Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:

Costs associated with two alternatives, code-named Q and R, being considered by Hunnicutt Corporation are listed below: Required: a.Which costs are relevant and which are not relevant in the choice between these two alternatives? b.What is the differential cost between the two alternatives?

A cost that is relevant in one decision may not be relevant in another decision.

Dowchow Corporation makes two products from a common input.Joint processing costs up to the split-off point total $38, 400 a year.The company allocates these costs to the joint products on the basis of their total sales values at the split-off point.Each product may be sold at the split-off point or processed further.Data concerning these products appear below: What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

Crane Corporation makes four products in a single facility.Data concerning these products appear below: The milling machines are potentially the constraint in the production facility.A total of 22, 600 minutes are available per month on these machines. Which product makes the MOST profitable use of the milling machines?