Quarles: Homework Ch 6

Landor Appliance Corporation makes and sells electric fans. Each fan regularly sells for $38. The following cost data per fan is based on a full capacity of 126,000 fans produced each period. Direct materials $9 Direct labor $10 Manufacturing overhead (80% variable and 20% unavoidable fixed) $10 A special order has been received by Landor for a sale of 30,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $3 per fan for shipping. Landor is now selling 91,000 fans through regular channels each period. Assume that direct labor is an avoidable cost in this decision. What should Landor use as a minimum selling price per fan in negotiating a price for this special order?

Explanation Direct materials $ 9 Direct labor 10 Manufacturing overhead (80% of $10) 8 Shipping cost 3 Relevant cost $30 The selling price should at least cover the relevant cost.

An automated turning machine is the current constraint at Jordison Corporation. Three products use this constrained resource. Data concerning those products appear below: LN JQ RQ Selling price per unit $166.99 $364.43 $431.06 Variable cost per unit $116.03 $269.93 $278.42 Minutes on the constraint 2.60 5.40 9.60 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. (Round your intermediate calculations to 2 decimal places.)

Explanation LN JQ RQ Selling price per unit $166.99 $364.43 $431.06 Variable cost per unit 116.03 269.93 278.42 Contribution margin per unit (a)$50.96 $94.50 $152.64 Amount of the constrained resource required to produce one unit (b) 2.60 5.40 9.60 Contribution margin per unit of the constrained resource (a) ÷ (b) $19.60 $17.50 $15.90 Ranking 1 2 3 LN JQ RQ

Part U16 is used by Mcvean Corporation to make one of its products. A total of 19,500 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: Per Unit Direct materials $4.20 Direct labor $8.80 Variable manufacturing overhead $9.30 Supervisor's salary $4.70 Depreciation of special equipment $3.10 Allocated general overhead $8.30 An outside supplier has offered to make the part and sell it to the company for $29.90 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including the 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, the space used to make part U16 could be used to make more of one of the company's other products, generating an additional segment margin of $31,500 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part U16 from the outside supplier should be:

Explanation Make Direct materials (19,500 units × $4.20 per unit) $81,900 Direct labor (19,500 units × $8.80 per unit) 171,600 Variable overhead (19,500 units × $9.30 per unit) 181,350 Supervisor's salary (19,500 units × $4.70 per unit) 91,650 Depreciation of special equipment (not relevant) 0 Allocated general overhead (avoidable only) 0 Opportunity cost 31,500 Total relevant cost to make $558,000 Make Outside purchase price (19,500 units × $29.90 per unit) $583,050 Total relevant cost to make 558,000 Higher cost to purchase $25,050

Boney Corporation processes sugar beets that it purchases from farmers. Sugar beets are processed in batches. A batch of sugar beets costs $46 to buy from farmers and $11 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $16 or processed further for $15 to make the end product industrial fiber that is sold for $58. The beet juice can be sold as is for $41 or processed further for $19 to make the end product refined sugar that is sold for $58. What is the financial advantage (disadvantage) for the company from processing the intermediate product beet juice into refined sugar rather than selling it as is?

Explanation Refined Sugar Final sales value after further processing $58 Less sales value at split-off point 41 Incremental revenue from further processing 17 Less cost of further processing 19 Financial advantage (disadvantage) from further processing $ (2)

The constraint at Rauchwerger Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: WX KD FS Selling price per unit $192.00 $542.66 $222.84 Variable cost per unit $158.72 $420.54 $167.76 Minutes on the constraint 3.20 8.60 3.60 Assume that sufficient time is available on the constrained machine 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? (Round your intermediate calculations to 2 decimal places.)

Explanation WX KD FS Selling price per unit $192.00 $542.66 $222.84 Variable cost per unit 158.72 420.54 167.76 Contribution margin per unit (a) $33.28 $122.12 $55.08 Amount of the constrained resource required to produce one unit (b) 3.20 8.60 3.60 Contribution margin per unit of the constrained resource (a) ÷ (b) $10.40 $14.20 $15.30 Ranking 3 2 1 10.40

Fabri Corporation is considering eliminating a department that has an annual contribution margin of $39,000 and $78,000 in annual fixed costs. Of the fixed costs, $19,500 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be:

Explanation Avoidable fixed costs = $78,000 − $19,500 = $58,500 Contribution margin $ 39,000 Avoidable fixed costs 58,500 Segment margin $ (19,500 ) If the department were eliminated, the company would eliminate the department's negative segment margin of $19,500.