Question : 156.The manager of quality control at Zenic Products, a medical : 1302679

 

156.The manager of quality control at Zenic Products, a medical products company, purchased a new lab machine for $44,000 two years ago during 2014. This year, a new machine, which is faster and more precise than the current model, is available in the market. In deciding whether or not to purchase the new machine, indicate if the manager should consider each of the following costs and why.

                                         The original cost of the old machine

                                        The value at which the old machine can be sold in the used equipment market

 

157.Jones Cola sells bottled beverages. During the past year, 40,000 bottles were produced and sold at a price of $1.20 per bottle. Variable cost per unit was $0.45 and total fixed costs were $150,000. Jones Cola would like to raise the price per bottle to $1.50, but feels that this will reduce sales to 36,000 bottles per year. Perform the appropriate incremental analysis of this situation. Clearly label the incremental revenues, incremental costs, and incremental profits. Should Jones Cola raise its price?

 

 

 

158.ZBar Supplies is currently producing 20,000 tape dispensers per month, but has the capacity to produce 25,000 tape dispensers without incurring any additional fixed costs. The selling price is $5.00 per dispenser and variable cost per unit is $2.00. Total fixed costs are $35,000. Marathon Corporation approaches ZBar with a proposal to buy 4,000 dispensers at a price of $4.25 per unit. Prepare the incremental analysis that ZBar should use to evaluate this situation. Assuming that other customers are not affected, should ZBar accept Marathon’s offer?

 

 

CHALLENGE EXERCISES

 

159.Fiesta Shirts produces two types of t-shirts—crew neck and v-neck. The variable cost of producing each crew neck shirt is $4.25, and $4.50 per shirt for each v-neck. Fixed costs per shirt are $1.50 per shirt when the production level is 12,000 of both types of shirts. The fixed cost is for factory costs including rent, depreciation, and insurance. Crew necks are currently sold for $7.00 each, while v-necks are sold for $8.00 each. During the past year, the company has sold 12,000 of each type of shirt. The company estimates it can sell 14,000 crew neck shirts during the upcoming year if it reduces the selling price to $6.50 per shirt.

 

                Prepare the incremental analysis to evaluate this situation for the coming year.

               Should Fiesta Shirts reduce the selling price? Why or why not?

                Why is the fixed cost of each shirt not used in the incremental analysis?

               Why does the analysis in part “a” exclude amounts related to the v-neck shirts?

 

 

160.Junk Food Palace has two product lines: candy and chips. Information for the month of June is presented below:

CandyChips

Units sold5,0008,000

Revenue$7,500$16,000

Variable costs4,0008,800

Fixed costs2,0002,000

Net income (loss)$1,500$  5,200

 

                A potential new customer has asked to buy 1,000 candy products and 1,500 chips products at 80% of the price paid by other customers. Prepare an incremental analysis that will help Junk Food Palace’s managers decide whether to accept the order from the customer.

                Suppose Junk Food Palace decided to accept the order. Identify three other considerations that management should consider before accepting the order.

 

 

 

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