Accounting Chapter 12

Northern Optical ordinarily sells the X-lens for $50. The variable production cost is $10, the fixed production cost is $18 per unit, and the variable selling cost is $1. A customer has requested a special order for 10,000 units of the X-lens to be imprinted with the customer's logo. This special order would not involve any selling costs, but Northern Optical would have to purchase an imprinting machine for $50,000. What is the rock bottom minimum price below which Northern Optical should not go in its negotiations with the customer? In other words, below what price would Northern Optical actually be losing money on the sale? There is ample idle capacity to fulfill the order and the imprinting machine has no further use after this order.

$15

Ferguson Company manufactures 4,000 parts per year; the parts are used in the assembly of one of the company's products. The unit product cost of these parts is: Variable manufacturing cost $32 Fixed manufacturing cost 18 Unit product cost $50 The part can be purchased from an outside supplier at $40 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. What would be the annual impact on the company's net operating income as a result of buying the part from the outside supplier?

$16,000 increase

Consider the following production and cost data for two products, X and Y: Product X Product Y Contribution margin per unit $520 $480 Machine set-ups needed per unit 40 set-ups 32 set-ups The company can only perform 260,000 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?

$3,900,000

Horton Company sells its product for $63 per unit. The company's unit product cost based on the full capacity of 600,000 units is as follows: Direct materials $12 Direct labor 15 Manufacturing overhead 18 Unit product cost $45 A special order offering to buy 60,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $9 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. In negotiating a price for the special order, what should the minimum acceptable selling price per unit be?

$42

A study has been conducted to determine if one of the product lines of Kalamazoo Company should be discontinued. This product line generates a contribution margin of $300,000 per year. Fixed expenses allocated to the product line are $390,000 per year. It is estimated that $240,000 of these fixed expenses could be eliminated if the product line is discontinued. These data indicate that if the product line is discontinued, how would the company's overall net operating income change?

$60,000 decrease

Which of the following factors should be considered when deciding whether a part should be purchased from an outside supplier or notWhich of the following factors should be considered when deciding whether a part should be purchased from an outside supplier or not Answers:A. The variable cost of making the part B. The purchase price of the part C. The opportunity cost of using facilities to make the part D. All of the above

All of the above

Sentinel Inc. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $50,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split-off point. These sales values are as follows: Product X, $25,000; Product Y, $45,000; and Product Z, $30,000. Each product may be sold at the split-off point or processed further. The additional processing costs and the sales value after further processing for each product (on an annual basis) are as follows. Product X Product Y Product Z Additional processing costs $10,000 $32,000 $6,000 Sales value (after further processing) $40,000 $75,000 $37,000 Which product or products should be sold at the split-off point?

Product Y

Colonial Heritage makes reproduction colonial furniture from select hardwoods. Chair Tables Selling price per unit $80 $400 Variable cost per unit $30 $200 Board feet per unit 2 10 Monthly demand 600 100 The company's supplier of hardwood will only be able to supply 2,000 board feet this month. What plan (the number of chairs and tables to be produced) would maximize profits?

The company should make 600 chairs and 80 tables.

The Hudson Corporation has 8,000 obsolete units of a product that are carried in inventory at a manufacturing cost of $160,000. If the units are remachined for $40,000, they could be sold for $72,000. Alternatively, the units could be sold for scrap for $28,000. Which alternative is more desirable?

Those units should be remachined.

A department in a company should be dropped if:

lost contribution margin is less than eliminated fixed expenses