Incremental brief exercises Flashcards
Cobb Co incurs a cost of $28 per unit, of which $18 is variable, to make a product tha normally sells for $42. A foreign wholesaler offers to buy 5000 units at $25 each. Cobb will incur shipping costs of $1 per unit. Calcuatle the increase or decrease in net income Cobb will realize by accepting the special order, assuming Cobb has excess operating capacity. Should Cobb Co accept the special order
Reject Accept Inc Rev/Cost
Revenue 0 125,000 125,000
Costs 0 95,000 95,000
Net Incoem 0 30,000 30,000
Juanita co must decide whether to make or buy some of its compoents. the costs of producing 166,000 electrical cords for its floor lamps are as follows:
Direct materials 90,000, Direcet labour 20,000, VOH 32,000 and FOH 24,000
Instead of making the electrical cords at an average cost per unit of $1.00 (166,000 / 166,000), the company has an opportunity to buy the cords at $.90 per unit. if the company purchases tese cords, all vC and 1/4 of the FC will be elminated
Make Buy Inc. R/C
DM 90,000 0 90, 000
DL 20,000 0 20,000
VC 32,000 0 32,000
FC 24,000 18,000 6,000
Purchase 0 149,400 (149,400)
Total cost 166,000 167,400 (1,400)
this shows that they will incur an additional 1,400 costs if the buy the cords
Easy does it manufacuters unpainted furniture for DIY market. it currently sells a child’s rocking chair for $25. production costs are $12 Variable and $8 fixed. easy does it is considering painting the rocking chair and selling it for $35. VC to paint will be $9 and FC $2
Sell Process further Inc
Revenue 25 35 10
VC 12 21 (9)
FC 8 10 (2)
Net income 5 4 (1)
this shows that the rocking chairs should be sold unpainted because net income per chair will be $1 greater
Retain or Replace Equipment
Evett Corp. uses a machine that winds twine onto spools. the machine is unreliable and results in a significant amount of downtime and excessive labour costs. the management is considering replacing te machine with a more efficient one that will minimize downtime and excessive labour costs. OLd New
Orgianal purchse price 160,000 240,000
Acc depreciation 120,000 0
Estimated useful life 4 years 4 years
it is estimated that that the new machine will produce annual cost svings of $55,000. the old machine can be sold for scrap for $24,000. both machiens will have a salvage value of zero if operated for the reminder of their useful lives.
Retain Replace Incr cost/savings
Cost saving 0 220,000 220,000
new machine $ 0 (240,000) (240,000)
Proceeds for sale 0 24,000 24,000
Net Savings 0 4,0000 4,000
they should purchse the new machine
55,000 x 4 = 220,000
Lambert inc. manufactures several types of accessories. for the year, the knit hats and scarves lines had sale of $400,000, VC $310,000 and FC of $120,000. therefore, the knit hats and scarves line ad a net loss of $30,000. If lambert eliminates the knit hats and scarves lines, $20,000 of fixed csots will remain perapre an anaylysis showing whether the company should eliminate the knit ats and scarves line
Continue Eliminate Inc. Rev/Cost sav
Sales 400,000 0 (400,000)
VC 310,000 0 310,000
CM 90,000 0 (90,000)
FC 120,000 20,000 100,000
Net Inc (30,000) (20,000) 10,000
this shows if the eliminate the knit hats and scarves line net income will increase by $10,000
Canada bearings corp. manufactures and sells three different types of high quality sealed ball bearings, which vary in their quality specifications - maninly in terms of their smoothness and roundness. they are referred to as fine, extra fine and superfile bearings. macine time is limited. the company requires more macine time to manufacute the extra-fine and super-fine bearings.
Fine Extra fine Superfile sP $6.00 10.000 16.00 VC 4.00 6.50 11.00 CM 2.00 3.50 5.00 Ma hrs 0.02 0.04 0.08
Ignoring the machine time constraint, determine what would be best
b. calculate the CM per unit of limited resouece of each type
c. assuming the company could obtain additional macine hours, determine how it should use the addtioanl capacity
a) super fine bearnings have the higest CM per unit. it would appear currently that company should shift toward production of more superfine units
b) Fine extra fine super fine
CM per unit $2 $3.5 $5
/lmited res.
consumed /unit /0.02 /0.04 /0.08
CM 100,000 87.50 62.50
c0
the fine bearings have the higest CM per limited resource, even though they have the lowest CM per unit. because of this resource constraint, any additional capcity should be used to make fine bearings.
