Question :
137.Deason Distributors has decided to discontinue manufacturing its Venus model : 1302797
137.Deason Distributors has decided to discontinue manufacturing its Venus model blender. Currently, the company has 4,600 partially completed blenders on hand. The government has taken the blades off the market that the company uses in the blender, so each base must be reworked to accommodate a new style of blades. The company has spent $110 per unit to manufacture these blenders to their current state. Reworking each blender will cost $20 for material and $20 for direct labor. In addition, $7 of variable overhead and $32 of allocated fixed overhead (relating primarily to depreciation of plant and equipment) will be allocated per unit. If Deason completes the blenders, it can sell them for $160 per unit. On the other hand, another manufacturer is interested in purchasing the partially completed blenders for $104 each and converting them into choppers. In good form, prepare an incremental analysis per unit to determine if Deason should complete the blenders or sell them in their current state.
138.Football Fanatics sells logo sports merchandise and does custom embroidery. The company is contemplating whether or not to continue the embroidery service. All of the company’s direct fixed costs can be avoided if a segment is dropped. The following information is available for the segments.
EmbroideryApparel
Sales $60,000 $250,000
Variable costs 30,000 110,000
Contribution margin 30,000 140,000
Direct fixed costs 22,000 40,000
Allocated common fixed costs 12,000 50,000
Net income ($ 4,000) $ 50,000
a.What will be the impact on net incomeif the embroidery segment is dropped?
b.Assume that if the embroidery segment is dropped, apparel sales will increase 10%. What is the impact on contribution margin and net incomesolely for the apparel ?
c.Identify one cost that is not relevant in this analysis.
139.Sausalita’s Cantina has been approached by Luck & Deweythat wants to hold an employee recognition dinner next month. The restaurant manager agreed to a charge of $50 per person for food, wine, and dessert for 90 people. The manager estimates that the cost of the food will be $17 per person and beverages will be $15 per person.
To be able to accommodate the group, the restaurant must be closed for dinner that night. Typically, 100 people with an average bill of $44 per person would be served each evening, with the cost of food estimatedat $14 per person and beverages at$11 per person. No additional staff will need to be hired to accommodate the group from Luck & Dewey.
a.In good form, prepare an incremental analysis to determine the effect on net incomeassociated with accepting the Luck & Dewey group.
b.What is the opportunity cost of accepting the Luck & Dewey group?
b.$4,400 – $2,500 = $1,900
140.Acer Computing manufactures tablets. The manufacturing process uses a processor that Acer currently manufacturers. The resource officer of Acer has been asked to determine if it is advisable to purchase the processors rather than make them internally (the current practice). Identify which of the following items are relevant to the resource officer’s decision by circling the number preceding each relevant item.
The original cost of equipment currently used to manufacture the processors
The market value of equipment currently used to manufacture the tablets
3.The cost of buying processors from suppliers
4.Rent revenue for the space freed up if the processors are not manufactured internally
5.The salary of the president of Acer Computing
6.The quality of the processors made internally
7.The quality of the processors purchased from suppliers
8.Depreciation on equipment used to manufacture the processors
9.The labor contract with production workers
10.The selling prices of tablets
141.Rocking Express manufactures rocking chairs. Recently, the company began manufacturing and marketing a chair with an automatic rocker. Demand for this rocker is very strong and the CEO of Rocking Express is considering dropping production of the company’s original rocker. This will give the company increased capacity to devote to the new model.Identify which of the following items are relevant to the CEO’s decision by circling the number preceding each relevantitem.
1.The original cost of equipment used to manufacture the old rocker
2.Depreciation of the equipment used to manufacture the old rocker (ignore taxes)
3.The rent on the warehouse used to store the completed inventory and materials
4.The time it takes to manufacture each rocker
5.The factory janitor’s salary
6.The selling price of the new rocker
7.The variable cost of producing the new rocker
8.The cost of retraining personnel to make the newer rocker
9.Depreciation of the factory building allocated to the old rocker
