Exam 11: Tactical Decision Making

What defines flexible resources?

Manning Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows: Sales Value Additional Sales Value of Product at Split-Off Processing Costs Final Product W \ 40,000 \ 60,000 \ 80,000 \ 12,000 \ 4,000 \2 0,000 \ 20,000 \ 32,000 \ 120,000 Z \ 28,000 \ 20,000 \3 2,000 \ 100,000 \1 16,000 \ 252,000 -Refer to the figure.What effect will processing Y further have on profits?

Miller Company produces speakers for home stereo units. The speakers are sold to retail stores for $30. Manufacturing and other costs are as follows: Variable costs per unit: Variable costs per unit: Fixed costs per month: Direct materials \ 9.00 Factory overhead \ 120,000 Direct labour 4.50 Selling and admin. 60,000 Factory overhead 3.00 Total \1 80,000 Distribution 1.50 Total \1 8.00 The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year. -Boone Products had the following unit costs: Direct materials \2 4 Direct labour 10 Variable factory overhead 8 Fixed factory overhead (allocated) 18 A one-time customer has offered to buy 1,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order,how much additional profit or loss will be generated from the special order?

Barron Company's current year's income statement is as follows: Sales (5,000 units \times\ 15) \7 5,000 Less variable expenses: Cost of goods sold: Direct materials \ 15,000 Direct labour 10,000 Variable factory overhead 10,000 Selling and administrative Contribution margin \3 7,500 Less fixed expenses: Factory overhead \1 0,000 Selling and administrative Net income (loss) In an attempt to improve the company's profit performance,management is considering a number of alternative actions. Determine the effect of each of the following on monthly profit.Each situation is to be evaluated independently of all the others. a.Purchasing automated assembly equipment.This action should reduce direct labour costs by 40 percent.It also will increase variable overhead costs by 10 percent and fixed factory overhead by $2,500. b.Reducing the unit selling price by $2 per unit.This should increase the monthly sales by 5,000 units.Fixed factory overhead will increase by $1,500. c.Increase fixed selling and administrative expenses by $1,000 for advertising costs.The number of units sold will increase to 8,000 units.

Information about three joint products follows: Anticipated production 5,000 1,000 2,000 Selling price/kg at split-off Additional processing costs/ \ 10 \ 30 \ 16 after split-off (all variable) \ 6 \ 12 \ 24 Selling price/kg after further processing \2 0 \4 0 \5 0 The cost of the joint process is $140,000. -Refer to the figure.If the firm is currently processing all three products beyond split-off,what would be the firm's income?

The following information pertains to the EWIN Company’s three products: Unit sales per month 9.000 8,00 Selling price per unit \ 6.00 \ 11.25 \ 7.5 Variable costs per unit 3.00 9.00 7.00 Unit contribution margin \ 3.00 \ 2.25 \0 .50 Batches 5 10 5 Setups 6 3 1 Direct fixed costs Advertising \ 3,000 \ 2,000 \ 1,000 Supervision 5,000 5,000 5,000 Common fired costs Inspecting products ($10,000) Materials handling ($4,000) Customer service ($5,000) Plant depreciation ($6,000) General administration ($8,000) -Refer to the figure.When EWIN converted over to ABC it discovered the following: What would be the operating income for EWIN?

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Direct materials \ 2,400 Direct labour 960 Factory overhead (30\% variable) 1,800 Selling expenses (50\% variable) 900 Administrative expenses (10\% variable) \ 80 Total per unit \ 6,900 Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order. -Refer to the figure.If Reggie Corporation wants to increase its profit by $18,000 on the special order,what is the minimum price it should charge per unit?

Rose Manufacturing Company had the following unit costs: Direct materials \2 4 Direct labour 8 Variable manufacturing overhead 10 Fixed manufacturing overhead 18 A one-time customer has offered to buy 2,000 units at a special price of $48 per unit.Assuming that sufficient unused production capacity exists to produce the order and no regular customers will be affected by the order,how much additional profit or loss will be generated by accepting the special order?

What is the term for the use of relevant cost data to identify the alternative that provides the greatest benefit to the organization?

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Direct materials \ 2,400 Direct labour 960 Factory overhead (30\% variable) 1,800 Selling expenses (50\% variable) 900 Administrative expenses (10\% variable) \ 80 Total per unit \ 6,900 Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order. -Refer to the figure.Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order.There are selling expenses on only the sales to the regular customers.What is the net income if the special order of 100 units is accepted?

The following information relates to a product produced by Creamer Company: Direct materials \ 24 Direct labour 15 Variable overhead 30 Fixed overhead 18 Unit cost \ 87 Fixed selling costs are $500,000 per year,and variable selling costs are $12 per unit sold.Although production capacity is 600,000 units per year,the company expects to produce only 400,000 units next year.The product normally sells for $120 each.A customer has offered to buy 60,000 units for $90 each. If the firm produces the special order,what would be the effect on income?

What are sunk costs?

Miller Company produces speakers for home stereo units.The speakers are sold to retail stores for $30.Manufacturing and other costs are as follows: Variable costs per unit: Fixed costs per month: Direct materials \ 9.00 Factory overhead \ 120,000 Direct labour 4.50 Selling and admin. Factory overhead 3.00 Total \ 180,000 Distribution 1.50 Total \ 18.00 The variable distribution costs are for transportation to the retail stores.The current production and sales volume is 20,000 per year.Capacity is 25,000 units per year. - A Manitoba manufacturing firm has offered a one-year contract to supply speaker parts at a cost of $16.00 per unit.If Miller Company accepts the offer,it will be able to rent unused space to an outside firm for $18,000 per year.All other information remains the same as the original data.What is the effect on profits if Miller Company buys from the Manitoba firm?

A purchasing agent has two potential firms from which to buy materials for production.If both firms charge the same price,what is the material cost?

Bonilla Corporation,which produces one product,had the following income statement for a recent month: Bonilla Corporation Income Statement For the Month of April Sales \ 30,000 Cost of goods sold Gross profit \ 3,000 Selling and administrative Net income There were no beginning or ending inventories of work-in-process or finished goods.Bonilla's manufacturing costs were as follows: Direct materials (1,200 unts \times\ 5) \ 6,000 Direct labour (1,200 units \times\ 8) 9,600 Variable overhead (1,200 units \times\ 4.50) 5,400 Fixed overhead Total Average cost per unit Selling and administrative expenses are all fixed. Bonilla has just received a special order from a firm in Canada to purchase 800 units at $20 each.The order will not affect the selling price to regular customers. a.Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order,assuming Bonilla has excess capacity. b.Determine the net advantage or disadvantage (profit increase or decrease)of accepting the order,assuming Bonilla does not have excess capacity.

What is the term for future costs that differ across alternatives?

Vest Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: Direct materials \ 75,000 Direct labour 120,000 Variable manufacturing overhead 45,000 Fixed manufacturing overhead \ 60,000 Total \ 300,000 An outside supplier has offered to sell the component for $12.75. - Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier. What is the effect on income if Vest purchases the component from the outside supplier?

Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: Direct materials \1 2 Direct labour 36 Variable manufacturing overhead 18 Fixed manufacturing overhead 24 The company has the capacity to produce 90,000 units.The product regularly sells for $120. -Refer to the figure.A wholesaler has offered to pay $110 a unit for 7,500 units. If the special order is accepted,what would be the effect on operating income?

Stars Manufacturing Company produces Products A1, B2, C3, and D4 through a joint process. The joint costs amount to $200,000. $\text { If Processed Further }$ Sales Value Additional 1 3,000 \ 10,000 \ 2,500 \ 15,000 2 5,000 30,000 3,000 35,000 3 4,000 20,000 4,000 25,000 4 6,000 40,000 6.000 45,000 -Refer to the figure.Which product(s)should be sold at split-off to maximize profits in the short run?

Read the following three situations: I.Clessin Architects employs 10 architects who can supply a capacity of 18,000 billable hours per year. The costs related to these 10 architects amount to \$900,00 ar \$50 per hour. Last year, the firm billed 17,800 haurs. Next year, the Fin estimates billing hours to take a slight downtun to 17,00 hours. However. Clessin plans to retain all 10 architects. II. Clessin Architects also employs surveyors an a contact basis. Last year, Clessin contracted with o surveyors to provide surveys for existing prajects. Due to the expected downtur for next year, Clessin will contract services of anly 7 surveyors as needed. III. Clessin currenty leases space in a builling at the cost of \$36,000 per year. The company is outgrowing the space and contemplating a decision to desiprand build its own builling at a cost of \$250,000. The new building would have space for at least 18 architects Identify which resource category relates to each situation under the activity resource usage model and explain your choice.