GNB+13e+Questions+Ch+13

GNB+13e+Questions+Ch+13 - Relevant Costs for Decision...

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615 Relevant Costs for Decision Making However, a $90,000 charge for fixed manufacturing overhead will be absorbed by the product un- der the company's absorption costing system. Using the estimated sales and production of 100,000 boxes of Chap-Off, the Accounting De- partment has developed the following cost per box: Direct material. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.60 Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.00 Manufacturing overhead. . . . . . . . . . . . . . . . . . . . . 1.40 Total cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7.00 The costs above include costs for producing both the lip balm and the tube that contains it. As an alternative to making the tubes, Silven has approached a supplier to discuss the possibility of purchasing the tubes for Chap-Off. The purchase price of the empty tubes from the supplier would be $1.35 per box of 24 tubes. If Silven Industries accepts the purchase proposal, direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and direct materials costs would be reduced by 25%. Required: I. Should Silven Industries make or buy the tubes? Show calculations to support your answer. 2. What would be the maximum purchase price acceptable to Silven Industries? Explain. 3. Instead of sales of 100,000 boxes, revised estimates show a sales volume of 120,000 boxes. At this new volume, additional equipment must be acquired to manufacture the tubes at an annual rental of $40,000. Assuming that the outside supplier will not accept an order for less than 100,000 boxes, should Silven Industries make or buy the tubes? Show computations to sup- port your answer. 4. Refer to the data in (3) above. Assume that the outside supplier will accept an order of any size for the tubes at $1.35 per box. How, if at all, would this change your answer? Show computations. 5. What qualitative factors should Silven Industries consider in determining whether they should make or buy the tubes? (CMA, adapted) PROBLEM 13-22 Close or Retain a Store [L02] Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below: Sales .......................... $3,000,000 $720,000 $1,200,000 $1,080,000 Cost of goods sold ............... 1,657,200 403,200 660,000 594,000 Gross margin ................... 1,342,800 316,800 540,000 486,000 Selling and administrative expenses: Selling expenses ............... 817,000 231,400 315,000 270,600 Administrative expenses ......... 383,000 106,000 150,900 126,100 Total expenses .................. 1,200,000 337,400 465,900 396,700 Net operating income (loss) ......... $ 142,800 $ (20,600) $ 74,100 $ 89,300 The North Store has consistently shown losses over the past two years. For this reason, manage- ment is giving consideration to closing the store. The company has asked you to make a recom-
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This note was uploaded on 02/10/2011 for the course UGBA 102B taught by Professor Fan during the Spring '08 term at Berkeley.

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GNB+13e+Questions+Ch+13 - Relevant Costs for Decision...

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