Question : 81) A local accounting firm has offered to do all the : 1196062

 

81)

A local accounting firm has offered to do all the billings and collections of a general practitioner. The annual fee will be $12,000. The service will replace the part-time bookkeeper who works for $12 an hour, 10 hours a week. Because these activities will take place away from the office, the doctor estimates that she will have one additional hour a week to see patients. Normally she sees four patients an hour with an average visit fee of $100. The office is open 50 weeks a year. Since the computer service will maintain all records in its office, the doctor will no longer need to rent storage space for the office files. The storage space rents for $150 a month.

Requirement:

Determine whether or not the doctor should accept the offer to use the computer service. 81)

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82)

Kirkland Company manufactures a part for use in its production of hats.

When 10,000 items are

produced, the costs per unit are:

 

Direct materials$0.60

Direct manufacturing labour3.00

Variable manufacturing overhead1.20

Fixed manufacturing overhead

1.60

 

Total $6.40

Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit.

The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer.

In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.

 

Required:

a.What is the relevant per unit cost for the original part?

b.Which alternative is best for Kirkland Company? By how much?

 82)

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83)

Lovejoy’s Cake Shop makes three type of cakes; White, Chocolate, and Swirl on one assembly line that has a limit of 400 labour-hours per week. Lovejoy can sell all the cakes it can make under current operating capacity. Manufacturing information per cake for each product is as follows:

 

White    Chocolate    Swirl

Selling price$16$10$20

Variable costs10518

Labour-hours per cake4.2.4

 

Requirements:

 

Determine the weekly contribution margin when all labour-hours are allotted to the product with the highest:

a.Unit selling price.

b.Unit contribution margin.

c.Contribution per labour-hour. 83)

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84)

John Hatelak, a sales representative for a manufacturing equipment company, has decided to spend less time traveling. He is going to spend only 172 hours per month with his customers. To do this he will have to give up some of his clients. The following information is from his last full month’s sales activities.

 

LargeMediumSmall

Customers   Customers   Customers

Number of customers20100160

Average sale per customer$6,000$2,000$1,200

Commission (% of sales $)10%7%5%

Average time per customer643

 

Requirement:

 

What should be his client mix in order to maximize his sales commissions? 84)

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85)

Norton’s Mufflers manufactures three different product lines, Model X, Model Y, and Model Z.

Considerable market demand exists for all models. The following per unit data apply:

Model XModel YModel Z

Selling price$80$90$100

Direct materials303030

Direct labour ($10 per hour)151520

Variable support costs ($5 per machine-hour)51010

Fixed support costs202020

 

Required:

a.For each model, compute the contribution margin per unit.

b.For each model, compute the contribution margin per machine-hour.

c.If there is excess capacity, which model is the most profitable to produce? Why?

d.If there is a machine breakdown, which model is the most profitable to produce? Why?

e.How can Norton encourage her sales people to promote the more profitable model?

 85)

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86)

A client in another province needs immediate help in solving a personnel training problem in the shipping department. Classify each activity on the basis of its relationship with this consulting engagement. Items may have multiple classifications. Use the following headings:

 

Relevant Costs

= RIrrelevant Costs = I

Opportunity = OPSunk =S

 

a.Four employees will have to spend three nights in Quebec City, the hotel bill has been negotiated in advance for $1,800.

b.All staff members receive $1,000 per diem for travel.

c.Current year’s amortization of the firm’s computer system is $15,000.

d.Round-trip transportation for each staff member is $500.

e.The firm is also sending the same four staff members to Toronto, for a two week engagement upon their return from this trip. The firm’s cost of this trip will be $10,000.

f.The firm has a $2,000 maintenance contract on its telecommunication system for the current year.

g.If the firm accepts this job, it will have to decline a job in Vancouver that has the potential of providing a net cash inflow of $5,000 after all expenses.

h.The firm’s variable overhead is $50 per client hour.

i.The firm will pay $60 next month for this year’s membership in the Canadian Consultants Society for each professional staff member.

j.Last year the firm paid $4,000 to make improvements in its 5-year leasehold on its offices. 86)

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87)

Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens

Manufacturing announced the availability of a new convection oven that cooks more quickly with lower

operating expenses. Pat is considering the purchase of this faster, lower-operating cost convection oven

to replace the existing one they recently purchased. Selected information about the two ovens is given

below:

 

ExistingNew Turbo Oven

Original cost$60,000$50,000

Accumulated depreciation$

5,000–

Current salvage value$40,000–

Remaining life5 years5 years

Annual operating expenses$10,000$ 7,500

Disposal value in 5 years$

 

0$

 

0

 

Required:

a.What costs are sunk?

b.What costs are relevant?

c.What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?

d.What other items should Pat, as manager of the Pizzeria, consider when making this decision?

 87)

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88)

A company produces two products, steel and wood beams. Steel Beams have a unit contribution margin of $400, and wood beams have a unit contribution margin of $300. The demand for steel beams exceeds their production capacity, which is limited by available direct labour and machine hours. The maximum demand for wood beams is 60 per week. Management desires that the product mix should maximize the weekly contribution toward fixed costs and profits.

 

Direct manufacturing labour is limited to 2,700 hours a week and 900 hours is all that the company’s outdated machines can run a week. The steel beams require 180 hours of labour and 90 machine hours. Wood beams require 270 labour hours and 60 machine hours.

 

Requirement:

 

Formulate the objective function and constraints necessary to determine the optimal product mix. 88)

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