Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use in one of its products.
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136. Kirsten Corporation makes
100,000 units per year of a part called a B345 gasket for use in one of its
products. Data concerning the unit production costs of the B345 gasket follow:
Direct materials………………………………
$0.15
Direct labor……………………………………
0.10
Variable
manufacturing overhead……..
0.13
Fixed
manufacturing overhead…………
0.24
Total
manufacturing cost per unit……..
$0.62
An outside supplier
has offered to sell Kirsten Corporation all of the B345 gaskets it requires. If
Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the
above fixed manufacturing overhead costs could be avoided.
Required:
a.
Assume Kirsten Corporation has
no alternative use for the facilities presently devoted to production of the
B345 gaskets. If the outside supplier offers to sell the gaskets for $0.46
each, should Kirsten Corporation accept the offer? Fully support your answer
with appropriate calculations.
b.
Assume that Kirsten Corporation
could use the facilities presently devoted to production of the B345 gaskets to
expand production of another product that would yield an additional
contribution margin of $10,000 annually. What is the maximum price Kirsten
Corporation should be willing to pay the outside supplier for B345 gaskets?
137. McGraw Company uses 5,000 units of Part X each year as a component
in the assembly of one of its products. The company is presently producing Part
X internally at a total cost of $100,000, computed as follows:
Direct materials………………………………
$ 15,000
Direct labor……………………………………
30,000
Variable
manufacturing overhead……..
10,000
Fixed
manufacturing overhead…………
45,000
Total costs……………………………………..
$100,000
An outside supplier
has offered to provide Part X at a price of $18 per unit. If McGraw Company
stops producing the part internally, one-third of the fixed manufacturing
overhead would be eliminated.
Required:
Prepare an analysis
showing the annual dollar advantage or disadvantage of accepting the outside
supplier’s offer.
Cost of
Cost of
Making
Buying
Outside purchase……………………………
$90,000
Direct materials………………………………
$15,000
Direct labor……………………………………
30,000
Variable manufacturing
overhead……..
10,000
Fixed manufacturing overhead*……….
15,000
Total cost………………………………………
$70,000
$90,000
138. Gottshall Inc. makes a range of products. The company’s
predetermined overhead rate is $19 per direct labor-hour, which was calculated
using the following budgeted data:
Variable
manufacturing overhead……..
$225,000
Fixed
manufacturing overhead…………
$630,000
Direct labor-hours…………………………..
45,000
Component P0 is
used in one of the companys products. The unit cost of the component according
to the companys cost accounting system is determined as follows:
Direct materials……………………………………
$21.00
Direct labor…………………………………………
40.80
Manufacturing
overhead applied……………
32.30
Unit product cost…………………………………
$94.10
An outside supplier
has offered to supply component P0 for $78 each. The outside supplier is known
for quality and reliability. Assume that direct labor is a variable cost,
variable manufacturing overhead is really driven by direct labor-hours, and
total fixed manufacturing overhead would not be affected by this decision.
Gottshall chronically has idle capacity.
Required:
Is the offer from
the outside supplier financially attractive? Why?
139. Recher Corporation uses part Q89 in one of its products. The
company’s Accounting Department reports the following costs of producing the
8,000 units of the part that are needed every year.
Per Unit
Direct materials……………………………………
$8.10
Direct labor…………………………………………
$4.40
Variable overhead………………………………..
$8.60
Supervisors
salary……………………………….
$3.20
Depreciation of
special equipment………….
$2.60
Allocated general
overhead…………………..
$1.30
An outside supplier
has offered to make the part and sell it to the company for $27.60 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. If the
outside supplier’s offer were accepted, only $3,000 of these allocated general
overhead costs would be avoided. In addition, the space used to produce part
Q89 could be used to make more of one of the company’s other products,
generating an additional segment margin of $16,000 per year for that product.
Required:
a.
Prepare a report that shows the
effect on the company’s total net operating income of buying part Q89 from the
supplier rather than continuing to make it inside the company.
b.
Which alternative should the
company choose?
140. Part U67 is used in one of Broce Corporation’s products. The
company’s Accounting Department reports the following costs of producing the
7,000 units of the part that are needed every year.
Per Unit
Direct materials……………………………………
$8.70
Direct labor…………………………………………
$2.70
Variable overhead………………………………..
$3.30
Supervisors
salary……………………………….
$1.90
Depreciation of
special equipment………….
$1.80
Allocated general
overhead…………………..
$5.50
An outside supplier
has offered to make the part and sell it to the company for $21.40 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. If the
outside supplier’s offer were accepted, only $6,000 of these allocated general
overhead costs would be avoided.
Required:
a.
Prepare a report that shows the
effect on the company’s total net operating income of buying part U67 from the
supplier rather than continuing to make it inside the company.
b.
Which alternative should the
company choose?
141. Juline Company 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:
Direct materials……………………………………………..
$53.60
Direct labor……………………………………………………
$5.30
Variable
manufacturing overhead…………………….
$1.40
Fixed
manufacturing overhead………………………..
$13.20
Variable selling
and administrative expense………
$1.60
Fixed selling and
administrative expense…………..
$9.10
The normal selling
price of the product is $91.60 per unit.
An order has been
received from an overseas customer for 3,000 units to be delivered this month
at a special discounted price. This order would have no effect on the company’s
normal sales and would not change the total amount of the company’s fixed
costs. The variable selling and administrative expense would be $1.00 less per
unit on this order than on normal sales.
Direct labor is a
variable cost in this company.
Required:
a.
Suppose there is ample idle
capacity to produce the units required by the overseas customer and the special
discounted price on the special order is $81.90 per unit. By how much would
this special order increase (decrease) the company’s net operating income for
the month?
b.
Suppose the company is already
operating at capacity when the special order is received from the overseas
customer. What would be the opportunity cost of each unit delivered to the
overseas customer?
c.
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 2,100
units for regular customers. What would be the minimum acceptable price per
unit for the special order?
142. Marsdon Company has an annual production capacity of 15,000 units.
The costs associated with production and sale of the company’s product are
given below:
Manufacturing
costs:
Variable……………………………………………
$12
per unit
Fixed (annual
cost)……………………………
$90,000
Selling and
administrative costs:
Variable (sales
commissions)………………
$3
per unit
Fixed (annual
cost)……………………………
$60,000
The company
presently is selling 12,000 units annually at a selling price of $28 each. A
special order has been received from a distributor who wants to purchase 3,000
units at a special price of $20 each. Regular sales would not be affected by
this order and the order could be filled without any impact on total fixed
costs. Sales commissions on the special order would be reduced by one-third.
Required:
Determine whether
the company should accept the special order.
143. Mcniff Corporation makes a range of products. The company’s
predetermined overhead rate is $28 per direct labor-hour, which was calculated
using the following budgeted data:
Variable
manufacturing overhead………….
$180,000
Fixed
manufacturing overhead……………..
$380,000
Direct labor-hours………………………………..
20,000
Management is
considering a special order for 200 units of product O96S at $122 each. The
normal selling price of product O96S is $149 and the unit product cost is
determined as follows:
Direct materials……………………………………
$ 67.00
Direct labor…………………………………………
32.00
Manufacturing
overhead applied……………
44.80
Unit product cost…………………………………
$143.80
If the special
order were accepted, normal sales of this and other products would not be
affected. The company has ample excess capacity to produce the additional
units. Assume that direct labor is a variable cost, variable manufacturing
overhead is really driven by direct labor-hours, and total fixed manufacturing
overhead would not be affected by the special order.
Required:
If the special
order were accepted, what would be the impact on the company’s overall profit?
144. Kneller Co. manufactures and sells medals for winners of athletic and
other events. Its manufacturing plant has the capacity to produce 12,000 medals
each month; current monthly production is 9,600 medals. The company normally
charges $99 per medal. Cost data for the current level of production are shown
below:
Variable costs:
Direct materials………………………
$480,000
Direct labor……………………………
$153,600
Selling and
administrative……….
$24,960
Fixed costs:
Manufacturing……………………….
$144,000
Selling and
administrative……….
$78,720
The company has
just received a special one-time order for 500 medals at $89 each. For this
particular order, no variable selling and administrative costs would be
incurred. This order would also have no effect on fixed costs.
Required:
Should the company
accept this special order? Why?
145. Anglen Co. manufactures and sells trophies for winners of athletic
and other events. Its manufacturing plant has the capacity to produce 18,000
trophies each month; current monthly production is 14,400 trophies. The company
normally charges $103 per trophy. Cost data for the current level of production
are shown below:
Variable costs:
Direct materials………………………
$460,800
Direct labor……………………………
$316,800
Selling and
administrative……….
$15,840
Fixed costs:
Manufacturing……………………….
$404,640
Selling and
administrative……….
$74,880
The company has
just received a special one-time order for 900 trophies at $48 each. For this
particular order, no variable selling and administrative costs would be
incurred. This order would also have no effect on fixed costs.
Required:
Should the company
accept this special order? Why?
136. Kirsten Corporation makes
100,000 units per year of a part called a B345 gasket for use in one of its
products. Data concerning the unit production costs of the B345 gasket follow: Direct materials………………………………$0.15Direct labor……………………………………0.10Variable
manufacturing overhead……..0.13Fixed
manufacturing overhead………… 0.24Total
manufacturing cost per unit……..$0.62 An outside supplier
has offered to sell Kirsten Corporation all of the B345 gaskets it requires. If
Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the
above fixed manufacturing overhead costs could be avoided. Required: a.
Assume Kirsten Corporation has
no alternative use for the facilities presently devoted to production of the
B345 gaskets. If the outside supplier offers to sell the gaskets for $0.46
each, should Kirsten Corporation accept the offer? Fully support your answer
with appropriate calculations.b.
Assume that Kirsten Corporation
could use the facilities presently devoted to production of the B345 gaskets to
expand production of another product that would yield an additional
contribution margin of $10,000 annually. What is the maximum price Kirsten
Corporation should be willing to pay the outside supplier for B345 gaskets? 137. McGraw Company uses 5,000 units of Part X each year as a component
in the assembly of one of its products. The company is presently producing Part
X internally at a total cost of $100,000, computed as follows: Direct materials………………………………$ 15,000Direct labor……………………………………30,000Variable
manufacturing overhead……..10,000Fixed
manufacturing overhead………… 45,000Total costs……………………………………..$100,000 An outside supplier
has offered to provide Part X at a price of $18 per unit. If McGraw Company
stops producing the part internally, one-third of the fixed manufacturing
overhead would be eliminated. Required: Prepare an analysis
showing the annual dollar advantage or disadvantage of accepting the outside
supplier’s offer. Cost ofCost ofMakingBuyingOutside purchase…………………………… $90,000Direct materials……………………………… $15,000Direct labor…………………………………… 30,000Variable manufacturing
overhead…….. 10,000Fixed manufacturing overhead*………. 15,000 Total cost……………………………………… $70,000$90,000 138. Gottshall Inc. makes a range of products. The company’s
predetermined overhead rate is $19 per direct labor-hour, which was calculated
using the following budgeted data: Variable
manufacturing overhead……..$225,000Fixed
manufacturing overhead…………$630,000Direct labor-hours…………………………..45,000Component P0 is
used in one of the companys products. The unit cost of the component according
to the companys cost accounting system is determined as follows:Direct materials……………………………………$21.00Direct labor…………………………………………40.80Manufacturing
overhead applied…………… 32.30Unit product cost…………………………………$94.10 An outside supplier
has offered to supply component P0 for $78 each. The outside supplier is known
for quality and reliability. Assume that direct labor is a variable cost,
variable manufacturing overhead is really driven by direct labor-hours, and
total fixed manufacturing overhead would not be affected by this decision.
Gottshall chronically has idle capacity. Required: Is the offer from
the outside supplier financially attractive? Why? 139. Recher Corporation uses part Q89 in one of its products. The
company’s Accounting Department reports the following costs of producing the
8,000 units of the part that are needed every year.Per UnitDirect materials……………………………………$8.10Direct labor…………………………………………$4.40Variable overhead………………………………..$8.60Supervisors
salary……………………………….$3.20Depreciation of
special equipment………….$2.60Allocated general
overhead…………………..$1.30 An outside supplier
has offered to make the part and sell it to the company for $27.60 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. If the
outside supplier’s offer were accepted, only $3,000 of these allocated general
overhead costs would be avoided. In addition, the space used to produce part
Q89 could be used to make more of one of the company’s other products,
generating an additional segment margin of $16,000 per year for that product. Required: a.
Prepare a report that shows the
effect on the company’s total net operating income of buying part Q89 from the
supplier rather than continuing to make it inside the company.b.
Which alternative should the
company choose? 140. Part U67 is used in one of Broce Corporation’s products. The
company’s Accounting Department reports the following costs of producing the
7,000 units of the part that are needed every year.Per UnitDirect materials……………………………………$8.70Direct labor…………………………………………$2.70Variable overhead………………………………..$3.30Supervisors
salary……………………………….$1.90Depreciation of
special equipment………….$1.80Allocated general
overhead…………………..$5.50 An outside supplier
has offered to make the part and sell it to the company for $21.40 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. If the
outside supplier’s offer were accepted, only $6,000 of these allocated general
overhead costs would be avoided. Required: a.
Prepare a report that shows the
effect on the company’s total net operating income of buying part U67 from the
supplier rather than continuing to make it inside the company.b.
Which alternative should the
company choose? 141. Juline Company 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: Direct materials……………………………………………..$53.60Direct labor……………………………………………………$5.30Variable
manufacturing overhead…………………….$1.40Fixed
manufacturing overhead………………………..$13.20Variable selling
and administrative expense………$1.60Fixed selling and
administrative expense…………..$9.10 The normal selling
price of the product is $91.60 per unit. An order has been
received from an overseas customer for 3,000 units to be delivered this month
at a special discounted price. This order would have no effect on the company’s
normal sales and would not change the total amount of the company’s fixed
costs. The variable selling and administrative expense would be $1.00 less per
unit on this order than on normal sales. Direct labor is a
variable cost in this company. Required: a.
Suppose there is ample idle
capacity to produce the units required by the overseas customer and the special
discounted price on the special order is $81.90 per unit. By how much would
this special order increase (decrease) the company’s net operating income for
the month?b.
Suppose the company is already
operating at capacity when the special order is received from the overseas
customer. What would be the opportunity cost of each unit delivered to the
overseas customer?c.
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 2,100
units for regular customers. What would be the minimum acceptable price per
unit for the special order? 142. Marsdon Company has an annual production capacity of 15,000 units.
The costs associated with production and sale of the company’s product are
given below: Manufacturing
costs:Variable……………………………………………$12per unitFixed (annual
cost)……………………………$90,000Selling and
administrative costs:Variable (sales
commissions)………………$3per unitFixed (annual
cost)……………………………$60,000 The company
presently is selling 12,000 units annually at a selling price of $28 each. A
special order has been received from a distributor who wants to purchase 3,000
units at a special price of $20 each. Regular sales would not be affected by
this order and the order could be filled without any impact on total fixed
costs. Sales commissions on the special order would be reduced by one-third. Required: Determine whether
the company should accept the special order. 143. Mcniff Corporation makes a range of products. The company’s
predetermined overhead rate is $28 per direct labor-hour, which was calculated
using the following budgeted data: Variable
manufacturing overhead………….$180,000Fixed
manufacturing overhead……………..$380,000Direct labor-hours………………………………..20,000Management is
considering a special order for 200 units of product O96S at $122 each. The
normal selling price of product O96S is $149 and the unit product cost is
determined as follows:Direct materials……………………………………$ 67.00Direct labor…………………………………………32.00Manufacturing
overhead applied…………… 44.80Unit product cost…………………………………$143.80 If the special
order were accepted, normal sales of this and other products would not be
affected. The company has ample excess capacity to produce the additional
units. Assume that direct labor is a variable cost, variable manufacturing
overhead is really driven by direct labor-hours, and total fixed manufacturing
overhead would not be affected by the special order. Required: If the special
order were accepted, what would be the impact on the company’s overall profit? 144. Kneller Co. manufactures and sells medals for winners of athletic and
other events. Its manufacturing plant has the capacity to produce 12,000 medals
each month; current monthly production is 9,600 medals. The company normally
charges $99 per medal. Cost data for the current level of production are shown
below: Variable costs:Direct materials………………………$480,000Direct labor……………………………$153,600Selling and
administrative……….$24,960Fixed costs:Manufacturing……………………….$144,000Selling and
administrative……….$78,720 The company has
just received a special one-time order for 500 medals at $89 each. For this
particular order, no variable selling and administrative costs would be
incurred. This order would also have no effect on fixed costs. Required: Should the company
accept this special order? Why? 145. Anglen Co. manufactures and sells trophies for winners of athletic
and other events. Its manufacturing plant has the capacity to produce 18,000
trophies each month; current monthly production is 14,400 trophies. The company
normally charges $103 per trophy. Cost data for the current level of production
are shown below: Variable costs:Direct materials………………………$460,800Direct labor……………………………$316,800Selling and
administrative……….$15,840Fixed costs:Manufacturing……………………….$404,640Selling and
administrative……….$74,880 The company has
just received a special one-time order for 900 trophies at $48 each. For this
particular order, no variable selling and administrative costs would be
incurred. This order would also have no effect on fixed costs. Required: Should the company
accept this special order? Why?
