Solutions%20to%20Ch%2012

Solutions%20to%20Ch%2012 - Exercise126(10minutes)

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Exercise 12-6  (10 minutes) Product X Product Y Product Z Sales value after further processing. .. $80,000  $150,000 $75,000 Sales value at split-off point. ..............   50,000             90,000       60,000     Incremental revenue. .......................... 30,000  60,000 15,000 Cost of further processing. .................   35,000             40,000       12,000     Incremental profit (loss). ..................... $(5,000 )       20,000           3,000     Products Y and Z should be processed further, but not Product X. Exercise 12-9  (15 minutes) Relevant Costs Item Make Buy Direct materials (60,000 @ $4.00). .............. $240,000 Direct labour (60,000 @ $2.75). .................. 165,000 Variable manufacturing overhead  (60,000 @ $0.50). ..................................... 30,000 Fixed manufacturing overhead, traceable  (1/3 of $180,000). ...................................... 60,000 Cost of purchasing from outside supplier  (60,000 @ $10). ........................................                         $600,000 Total cost. .................................................... $495,000 $600,000 The two-thirds of the traceable fixed manufacturing overhead costs  that cannot be eliminated, and all of the common fixed manufacturing  overhead costs, are irrelevant. The company would save $105,000 per year by continuing to make  the parts itself. In other words, profits would decline by $105,000 per  year if the parts were purchased from the outside supplier.
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Exercise 12-16  (20 minutes) The costs that are relevant in a make-or-buy decision are those costs  that can be avoided as a result of purchasing from the outside. The  analysis for this exercise is: Per Unit  Differential  Costs 20,000 Units Make Buy Make Buy Cost of purchasing. ........................ $23.50 $470,000 Cost of making: Direct materials. .......................... $ 4.80 $ 96,000 Direct labour. ............................... 7.00 140,000 Variable manufacturing overhead 3.20 64,000 Fixed manufacturing overhead. ...       4.00     *                         80,000                               Total cost. .................................... $19.00 $23.50 $380,000 $470,000 * The remaining $6 of fixed manufacturing overhead cost would  not be relevant, since it will continue regardless of whether the  company makes or buys the parts. The $150,000 rental value of the space being used to produce part R- 3 represents an opportunity cost of continuing to produce the part  internally. Thus, the completed analysis would be: Make Buy Total cost, as above. ............................................. $380,000 $470,000 Rental value of the space (opportunity cost). ........   150,000      
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This note was uploaded on 06/14/2011 for the course BUS 254 taught by Professor Favere-marchesi during the Fall '10 term at Simon Fraser.

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Solutions%20to%20Ch%2012 - Exercise126(10minutes)

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