Exam 6: Differential Analysis: the Key to Decision Making

Falsetta Corporation makes three products that use the current constraint, which is a particular type of machine.Data concerning those products appear below: Required: a.Rank the products in order of their current profitability from the most profitable to the least profitable.In other words, rank the products in the order in which they should be emphasized.Show your work! b.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?

Bowdish Corporation purchases potatoes from farmers.The potatoes are then peeled, producing two intermediate products-peels and depeeled spuds.The peels can then be processed further to make a cocktail of organic nutrients.And the depeeled spuds can be processed further to make frozen french fries.A batch of potatoes costs $37 to buy from farmers and $14 to peel in the company's plant.The peels produced from a batch can be sold as is for animal feed for $22 or processed further for $13 to make the cocktail of nutrients that are sold for $40.The depeeled spuds can be sold as is for $37 or processed further for $21 to make frozen french fries that are sold for $53. 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 potatoes into the cocktail of organic nutrients and frozen french fries? Show your work! b.Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed further into an end product? Explain.

Tish Corporation produces a part used in the manufacture of one of its products.The unit product cost is $26, computed as follows: An outside supplier has offered to provide the annual requirement of 5, 000 of the parts for only $21 each.The company estimates that 75% of the fixed manufacturing overhead cost above could be eliminated if the parts are purchased from the outside supplier.Assume that direct labor is an avoidable cost in this decision.Based on these data, the per-unit dollar advantage or disadvantage of purchasing from the outside supplier would be:

Fahringer Corporation makes three products that use compound W, the current constrained resource.Data concerning those products appear below: Rank the products in order of their current profitability from most profitable to least profitable.In other words, rank the products in the order in which they should be emphasized.

Eley Corporation produces a single product.The cost of producing and selling a single unit of this product at the company's normal activity level of 40, 000 units per month is as follows: The normal selling price of the product is $86.10 per unit. An order has been received from an overseas customer for 2, 000 units to be delivered this month at a special discounted price.This order would not change the total amount of the company's fixed costs.The variable selling and administrative expense would be $1.20 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 700 units for regular customers.The minimum acceptable price per unit for the special order is closest to:

Glocker Company makes three products in a single facility.These products have the following unit product costs: Additional data concerning these products are listed below. The mixing machines are potentially the constraint in the production facility.A total of 5, 900 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 Flint Fan Corporation is considering the addition of a new model fan, the F-27, to its current products.The expected cost and revenue data for the F-27 fan are as follows: If the F-27 is added as a new product, it is expected that the contribution margin of other products will drop by $7, 000 per year. If the F-27 product is added next year, the change in operating income should be:

A vertically integrated company is more dependent on its suppliers than a company that is not vertically integrated.

The term joint cost is used to describe the costs incurred after the split-off point in a process involving joint products.

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

In a factory operating at capacity, not every machine and person should be working at the maximum possible rate.

The management of Leinberger Corporation is considering dropping product S48J.Data from the company's accounting system appear below: All fixed expenses of the company are fully allocated to products in the company's accounting system.Further investigation has revealed that $28, 000 of the fixed manufacturing expenses and $21, 000 of the fixed selling and administrative expenses are avoidable if product S48J is discontinued. Required: What would be the effect on the company's overall net operating income if product S48J were dropped? Should the product be dropped? Show your work!

Rama Corporation is presently making part J56 that is used in one of its products.A total of 4, 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 produce and sell the part to the company for $30.80 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, none of which would be avoided if the part were purchased instead of produced internally. In addition to the facts given above, assume that the space used to produce part J56 could be used to make more of one of the company's other products, generating an additional segment margin of $13, 000 per year for that product.What would be the impact on the company's overall net operating income of buying part J56 from the outside supplier and using the freed space to make more of the other product?

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

The Madison Corporation produces three products with the following costs and selling prices: If Madison has a limit of 10, 000 direct labor hours but no limit on machine hours, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is:

Globe Manufacturing Company has just obtained a request for a special order of 12, 000 units to be shipped at the end of the current year at a discount price of $7.00 each.The company has a production capacity of 90, 000 units per year.At present, Globe is only selling 80, 000 units per year through regular channels at a selling price of $11.00 each.Globe's per unit costs at an 80, 000 unit level of production and sales are as follows: Variable selling and administrative expense will drop to $0.30 per unit on the special order units.The special order has to be taken in its entirety.This means that by accepting the special order, Globe will be forced to not sell 2, 000 units to its regular customers. Required: If Globe accepts this special order, by what amount will its net operating income increase or decrease?

Oruro Chemical Corporation manufactures a variety of household cleaners, solvents, and beverages.Because of a recent shortage of mytron, a key ingredient needed for three of its products, the corporation has to decide what amount of each product would be most advantageous to produce.Information related to the three products that use mytron are shown below: Assume that Oruro only has 3, 000 ounces of mytron available next month.What is the maximum amount of contribution margin that Oruro can generate next month from the three products above given the shortage of mytron?

Manico Corporation produces three products - X, Y, & Z - with the following characteristics: The company has only 2, 000 machine-hours available each month.If demand exceeds the company's capacity, in what sequence should orders be filled if the company wants to maximize its total contribution margin?

Dockwiller Inc.manufactures industrial components.One of its products, which is used in the construction of industrial air conditioners, is known as D53.Data concerning this product are given below: The above per unit data are based on annual production of 8, 000 units of the component.Direct labor is a variable cost. Refer to the original data in the problem.What is the current contribution margin per unit for component D53 based on its selling price of $150 and its annual production of 8, 000 units?

In a decision to drop a product, the product should not be charged for factory rent if the space in which the product is produced has no alternative use and the rental payment is unavoidable.