AF 210
ardam
Ch6Worksheets-Raw.xlsxEX1-Raw
| Place an X in the appropriate column to indicate whether each item is relevant or irrelevant to the decision context described in Case A and Case B (see EX6-1) | ||||||||
| Case A | Case B | On Own | ||||||
| Item | Relevant | Irrelevant | Relevant | Irrelevant | ||||
| a. | Sales revenue | |||||||
| b. | Direct materials | |||||||
| c. | Direct labor | |||||||
| d. | Variable manufacturing overhead | |||||||
| e. | Depreciation— Model B100 machine | |||||||
| f. | Book value— Model B100 machine | |||||||
| g. | Disposal value— Model B100 machine | |||||||
| h. | Market value—Model B300 machine (cost) | |||||||
| i. | Fixed manufacturing overhead (general) | |||||||
| j. | Variable selling expense | |||||||
| k. | Fixed selling expense | |||||||
| l. | General administrative overhead | |||||||
EX2-Raw
| Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the lineshould be discontinued. | ||||||||
| The special equipment used to produce racing bikes has no resale value and does not wear out. | ||||||||
| 1 | What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? | On Own | ||||||
| 2 | Should the production and sale of racing bikes be discontinued? | |||||||
| 3 | Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. | |||||||
| Total if | ||||||||
| Given: | Total | Dirt Bikes | Mountain Bikes | Racing Bikes | Bikes Dropped | Difference | ||
| Sales | $ 300,000 | $ 90,000 | $ 150,000 | $ 60,000 | $ 240,000 | |||
| Variable expenses | 120,000 | 27,000 | 60,000 | 33,000 | 87,000 | |||
| Contribution margin | 180,000 | 63,000 | 90,000 | 27,000 | 153,000 | |||
| Fixed expenses: | - 0 | |||||||
| Advertising, traceable | 30,000 | 10,000 | 14,000 | 6,000 | 24,000 | |||
| Depreciation on special equipment | 23,000 | 6,000 | 9,000 | 8,000 | 23,000 | |||
| Salaries of product-line managers | 35,000 | 12,000 | 13,000 | 10,000 | 25,000 | |||
| Common allocated costs | 60,000 | 18,000 | 30,000 | 12,000 | 60,000 | |||
| Total fixed expenses | 148,000 | 46,000 | 66,000 | 36,000 | 132,000 | |||
| Net operating income | $ 32,000 | $ 17,000 | $ 24,000 | $ (9,000) | $ 21,000 | |||
| Alternatively: | ||||||||
| Lost contribution margin | ||||||||
| Fixed costs that can be avoided: | ||||||||
| Advertising, traceable | ||||||||
| Salary of the product-line manager | ||||||||
| Financial (disadvantage) of discontinuing the Racing Bikes | ||||||||
| Hints: the depreciation of the special equipment is a sunk cost and is not relevant to the decision. | ||||||||
| common costs are allocated and will continue regardless of whether or not the racing bikes are discontinued; thus, they are not relevant to the decision. | ||||||||
| 3 | Better Analysis | Total | Dirt Bikes | Mountain Bikes | Racing Bikes | |||
| Sales | $ 300,000 | $ 90,000 | $ 150,000 | $ 60,000 | ||||
| Variable expenses | 120,000 | 27,000 | 60,000 | 33,000 | ||||
| Contribution margin | 180,000 | 63,000 | 90,000 | 27,000 | ||||
| Fixed expenses: | ||||||||
| Advertising, traceable | 30,000 | 10,000 | 14,000 | 6,000 | ||||
| Depreciation on special equipment | 23,000 | 6,000 | 9,000 | 8,000 | ||||
| Salaries of product-line managers | 35,000 | 12,000 | 13,000 | 10,000 | ||||
| Hint: eliminate the allocation of the common fixed expenses (see format introduced in Ch6) |
EX3-Raw
| The company has always produced all of the necessary parts for its engines. | ||||||
| An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. | ||||||
| The following information is provided (relating internal carburetor production): | On Own | |||||
| MAKE | BUY | |||||
| Given: | Per Unit | 15000 units/yr | 15000 | |||
| Direct materials | $ 14 | $ 210,000 | ||||
| Direct labor | 10 | 150,000 | ||||
| Variable manufacturing overhead | 3 | 45,000 | ||||
| Fixed manufacturing overhead, traceable* | 6 | 90,000 | <== Hint: only use 1/3 of this cost for your analysis | |||
| Fixed manufacturing overhead, allocated | 9 | 135,000 | ||||
| Total cost | $ 42 | $ 630,000 | $ 35 | |||
| *One-third supervisory salaries; two-thirds depreciation of special equipment(no resale value). | ||||||
| 1. Financial advantage (disadvantage) of buying 15,000 carburetors from the outside supplier? | ||||||
| 2. Should the outside supplier’s offer be accepted? | ||||||
| 3. If purchased, freed capacity could be used to launch a new product | ||||||
| with segment margin of $150,000 per year; what would be the advantage in this case? | ||||||
| 4. Given the new assumption in requirement 3, should the outside supplier’s offer be accepted? | ||||||
EX4-Raw
| Company manufactures and sells a gold bracelet for $189.95; the unit product cost is $149.00 as shown below: | ||||||||
| A customer wishes to buy 20 for at a discount of $169.95 and with a customization requiring a $250 (unique) tool, | ||||||||
| and increase of $2/unit in direct materials, and $4/unit in added overhead - all other variables will be unaffected. | ||||||||
| 1 | What is the financial advantage (disadvantage) of accepting the special order? | |||||||
| 2 | Should the company accept the special order? | Hint: remember to convert the custom tool to "per unit" | ||||||
| Given: | (per unit) | On Own | ||||||
| Existing | ||||||||
| Direct materials: | 84 | |||||||
| Direct labor: | 45 | |||||||
| Manufacturing overhead: | 20 | |||||||
| Additional Direct Overhead: | ||||||||
| Unit product cost: | 149 | |||||||
| Rev / Unit: | 189.95 | |||||||
| Cont Margin: | ||||||||
| 2 | ||||||||
EX5-Raw
| Data concerning three of a company’s most popular (luggage) models appear below. | |||||||
| 1 | Assume Time Constraint (use of plastic injection molding machine); determine Contribution Margin / Constraint Unit | ||||||
| 2 | Which product offers the most profitable use of the plastic injection molding machine? | ||||||
| 3 | Assume Pellet Constraint (assume shortage in plastic); determine Contribution Margin / Constraint Unit | ||||||
| 4 | Which product offers the most profitable use of the plastic pellets? | ||||||
| 5 | Which product has the largest (constraint free) contribution margin per unit? | ||||||
| Why wouldn’t this product be the most profitable use of the constrained resource in either case? | |||||||
| Given: | |||||||
| per unit | Ski Guard | Golf Guard | Finishing Guard | ||||
| Selling price: | 200 | 300 | 255 | ||||
| Variable cost: | 60 | 140 | 55 | ||||
| Processing time: | 2 | 5 | 4 | minutes | |||
| Pellets used: | 7 | 4 | 8 | pounds of pellets | |||
| 5 | |||||||
EX6-Raw
| The only variable cost (below) is direct materials and Demand > Manufacturing Capacity | |||||||||
| The demand for the company’s (upholstery) products far exceeds its manufacturing capacity. | |||||||||
| The bottleneck (constraint) is labor-hours. | |||||||||
| 1 | How much overtime per hour should the company pay to run extra hours? | ||||||||
| Hint: they should be willing to pay up to the Contribution Margin of the Constrained Resource | |||||||||
| 2 | How much additional contribution margin per hour if Love Seats are jobbed out at $45/hour? | ||||||||
| Hint: how much of the Cont Margin / Labor Hour will remain if subtracting an additional $45? | |||||||||
| 3 | Should the nearby upholstering company (even if demand for the Love Seat levels out)? Explain. | ||||||||
| Given: | per unit | Recliner | Sofa | Love Seat | On Own | ||||
| Selling price: | 1400 | 1800 | 1500 | ||||||
| Variable cost: | 800 | 1200 | 1000 | ||||||
