Account 221 Assistance

hwmarket-_week_7.xls

B-24.01

The focus of business decision making is to identify "relevant" items - those where future costs and revenues are expected to differ between alternatives under consideration. Examine the following listing, and apply your best judgment to identify if the item is "relevant."
	Relevant	Irrelevant
The cost of a prior paint job, in a decision to repaint a building.		✓
The original investment cost in shares of stock in a company that is in decline, in a decision to sell or hold.
Income taxes that can be saved by selling an asset at a loss, in a decision to sell or hold.
The cost of tearing out an old parking lot, in deciding whether or not to build a new lot.
The cost of textbooks, in deciding which classes to take during a semester.
The original cost of a textbook, in deciding whether or not to resell the book at the end of the term.
The cost of an attorney, in deciding whether to appeal a traffic fine that is undeserved.
The allocation of factory depreciation, in deciding whether to accept a special offer from a customer.
Research and development costs incurred to develop a new product, in deciding whether to file for a patent application.
Proceeds that will be received from the sale of "factory seconds," in deciding how to price a primary product.

&R&"Myriad Web Pro,Bold"&20B-24.01

B-24.01


	Relevant	Irrelevant
The cost of a prior paint job, in a decision to repaint a building.		✓
The original investment cost in shares of stock in a company that is in decline, in a decision to sell or hold.
Income taxes that can be saved by selling an asset at a loss, in a decision to sell or hold.
The cost of tearing out an old parking lot, in deciding whether or not to build a new lot.
The cost of textbooks, in deciding which classes to take during a semester.
The original cost of a textbook, in deciding whether or not to resell the book at the end of the term.
The cost of an attorney, in deciding whether to appeal a traffic fine that is undeserved.
The allocation of factory depreciation, in deciding whether to accept a special offer from a customer.
Research and development costs incurred to develop a new product, in deciding whether to file for a patent application.
Proceeds that will be received from the sale of "factory seconds," in deciding how to price a primary product.

&L&"Myriad Web Pro,Bold"&12Name: Date: Section: &R&"Myriad Web Pro,Bold"&20B-24.01

B-24.01

Pure Comfort manufactures and sells mattresses with adjustable air chambers. Pure Comfort has been producing and selling approximately 500,000 units per year. Each units sells for $600, and there are no variable selling, general, or administrative costs. The company has been approached by a foreign supplier who wishes to provide the air compressor component for $90 per unit. Total annual manufacturing costs, including air compressors, is as follows:
	Direct materials	$ 50,000,000
	Direct labor	80,000,000
	Variable factory overhead	16,000,000
	Fixed factory overhead	35,000,000
If Pure Comfort outsources the air compressor, it is expected that direct materials will be reduced by 20%, direct labor by 30%, and variable factory overhead by 25%. There will be no reduction in fixed factory overhead.
(a)	Should Pure Comfort outsource the air compressor?
(b)	If outsourcing the air compressor will free up capacity, and enable Pure Comfort to increase production and sales to 600,000 units per year, would it make sense to outsource?

B-24.02

B-24.02

OxiClear manufactures a tile and grout cleaner. The company was formed during the current year. As a result, there was no beginning inventory. Management is evaluating performance and inventory management issues, and desires to know both net income and ending inventory under generally accepted accounting principles (absorption costing) as well as variable costing methods. Relevant facts are as follows:
	Selling price per gallon	$ 4.40
	Variable manufacturing cost per gallon	0.80
	Variable SG&A costs per gallon	0.90
	Fixed manufacturing costs	$ 1,450,000
	Fixed SG&A	235,000
	Total gallons produced	650,000
	Total gallons sold	620,000

B-23.02

Absorption Costing
Variable manufacturing costs		$ -
Fixed manufacturing costs		-
Cost of goods manufactured		$ -
Cost of goods sold		-
Ending inventory		$ -
Sales		$ -
Cost of goods sold		-
Gross profit		$ -
Selling, general, & administrative costs
Variable	$ -
Fixed	-	-
Net income		$ -
Variable Costing
Ending inventory		$ -
Sales		$ -
Variable manufacturing costs		-
Variable manufacturing margin		$ -
Variable SG&A		-
Contribution margin		$ -
Fixed expenses
Manufacturing	$ -
SG&A	-	-
Net income		$ -

B-23.02

Printers Plus is a retailer of printers and ink cartridges. The printers carry a low profit margin and the ink cartridges a very high margin. Following is an aggregated budgeted performance plan for 20X5.
	Budgeted Performance Report All Stores For the Year Ending December 31, 20X5
	Sales
	Printers			$ 4,500,000
	Cartridges			4,500,000
	Total sales			$ 9,000,000
	Less: Variable expenses
	Printers			$ 4,000,000
	Cartridges			1,500,000
	Total variable expenses			$ 5,500,000
	Contribution margin			$ 3,500,000
	Traceable fixed costs			1,550,000
	Location margin			$ 1,950,000
	Common fixed costs			1,400,000
	Stores margin			$ 550,000
Although total sales met expectations for the year, management is upset that the targeted margins were not achieved. Following is the "store by store" actual performance report. Evaluate the detailed data and write a paragraph explaining the loss. If each store has a positive margin, as shown in the following report, why is management upset?
	Actual Performance Report All Stores For the Year Ending December 31, 20X5
		Store A	Store B	Store C
Sales
Printers		$ 2,000,000	$ 2,500,000	$ 1,000,000
Cartridges		500,000	2,000,000	1,000,000
Total sales		$ 2,500,000	$ 4,500,000	$ 2,000,000
Less: Variable expenses
Printers		$ 1,777,778	$ 2,222,222	$ 888,889
Cartridges		166,667	666,667	333,333
Total variable expenses		$ 1,944,444	$ 2,888,889	$ 1,222,222
Contribution margin		$ 555,556	$ 1,611,111	$ 777,778
Traceable fixed costs		450,000	600,000	500,000
Location margin		$ 105,556	$ 1,011,111	$ 277,778

B-22.03