319468790-Decision-Making-36-Practice-Questions-Solutions.pdf

# 319468790-Decision-Making-36-Practice-Questions-Solutions.pdf

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Q.1 Special Order Marshall Company recently approached Johnson Corporation regarding manufacturing a special order of 4,000 units of product CRB2B. Marshall would reimburse Johnson for all variable manufacturing costs plus 35 percent. The per-unit data follow: Unit sales price \$28 Variable manufacturing costs 13 Variable marketing costs 5 Fixed manufacturing costs 4 Fixed marketing costs 2 Johnson would have a retooling cost of \$12,000 for the special order. Johnson has no alternative use of capacity. Required Should the special order be accepted? Solution: Since there are no marketing costs for the special order, the only relevant cost is the variable manufacturing cost of \$13.00 per unit. Revenue for the special order – variable manufacturing cost =((1.3 - \$13.00) - \$13.00) × 4000 = \$18200 The special order should be accepted.

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Q.2 Special Order Alton Inc. is working at full production capacity producing 20,000 units of a unique product. Manufacturing costs per unit for the product are Direct materials \$ 9 Direct labor 8 Manufacturing overhead 10 Total manufacturing cost \$27 The unit manufacturing overhead cost is based on a \$4 variable cost per unit and \$120,000 fixed costs. The nonmanufacturing costs, all variable, are \$8 per unit, and the sales price is \$45 per unit. Sports Headquarters Company (SHC) has asked Alton to produce 5,000 units of a modification of the new product. This modification would require the same manufacturing processes. SHC has offered to share the nonmanufacturing costs equally with Alton. Alton would sell the modified product to SHC for \$35 per unit. Required 1. Should Alton produce the special order for SHC? Why or why not? 2. Suppose that Alton Inc. had been working at less than full capacity to produce 16,000 units of the product when SHC made the offer. What is the minimum price that Alton should accept for the modified product under these conditions? Solution: 1) Current Special Order Revenue per unit \$45.00 \$35.00 DM \$9.00 \$9.00 DL \$8.00 \$8.00 Variable factory Overhead \$4.00 \$4.00 Variable nonmanufacturing cost \$8.00 \$4.00 Total Variable Cost \$29.00 \$25.00 Contributed Marginal Per Unit \$16.00 \$10.00 Contributed MargiN FR 5000 unit \$80,000 \$50,000 The difference in favor of continuing with current production and turning down the special order is \$30,000 (\$80,000 - \$5,000) 2) The minimum would be the total variable cost per unit (\$25) plus the per unit cost of lost sales (\$3.20 = \$16,000/5000): \$25 + \$3.20 = \$28.20
Q.3 Make or Buy; Calista Company manufactures electronic equipment In 2009, it purchased the special switches used in each of its products from an outside supplier. The supplier charged Calista \$2 per switch. Calista’s CEO considered purchasing either machine X or machine Y so the company could manufacture its own switches. The CEO decided at the beginning of 2010 to purchase Machine X, based on the following data: Machine X Machine Y Annual fixed cost \$135,000 \$204,000 Variable cost per switch 0.65 0.30 Required 1. For machine X, what is the indifference point between purchasing the machine and purchasing from the outside vendor?

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• Spring '16
• emin cihan
• Meyer, martens, Beth Johnson

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