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Ch 13 Solutions to Assigned Homework

Ch 13 Solutions to Assigned Homework - Chapter 13 Solutions...

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Chapter 13 – Solutions to Assigned Homework EXERCISES Exercise 13–24 1. The two alternatives are to make the component in-house or to buy it from Bryce. 2. Alternatives Differential Make Buy Cost to Make Direct materials $12.00 $ 12.00 Direct labor 8.25 8.25 Variable overhead 3.50 3.50 Purchase cost $25 .00 (25 .00 ) Total relevant cost $23 .75 $25 .00 $ (1 .25 ) 3. Zion should make the component in-house because operating income will be $12,500 ($1.25 × 10,000) higher than if the part were purchased from Bryce. Exercise 13–27 In this case, it may be easier to deal with the total costs and revenues of the special order: Revenue ($7.00 × 15,000) ........................................... $105,000 Less variable costs: Direct materials ($3.00 × 15,000) .......................... $45,000 Direct labor ($2.25 × 15,000) ................................ 33,750 Variable overhead ($1.15 × 15,000) ...................... 17,250 96,000 Less labeling machine ............................................... 14,000 Loss on special order .......................................... $ (5,000 ) Smooth Move should reject the special order because it will reduce income by $5,000.
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Exercise 13–29 If Petoskey drops Conway, profit will decrease by $75,000 as a result of the lost contribution margin ($300,000 – $225,000). Note that the direct fixed expense for depreciation is a sunk cost and not relevant to the decision (i.e., it will remain unchanged whether Conway is kept or dropped). In addition, Petoskey will avoid the $80,000 supervisory salary cost if it drops Conway. Therefore, the overall impact of dropping Conway is that profit decreases by the 75,000 lost contribution margin but increases by the lost supervisory salary of $80,000, which is a net increase in profit of $5,000. Therefore, Petoskey should drop Conway because profits are higher without Conway than with Conway. Exercise 13–30 If Petoskey drops Conway, profit will decrease by $75,000 as a result of the lost contribution margin ($300,000 – $225,000). Note that the direct fixed expense for depreciation is a sunk cost and not relevant to the decision (i.e., it will remain unchanged whether Conway is kept or dropped). In addition, Petoskey will avoid the $80,000 supervisory salary cost if it drops Conway. Finally, if Petoskey drops Conway, 20% of Alanson’s contribution margin, or $33,000 (i.e., .20 × $165,000), will also be lost as Conway customers shop elsewhere for Alanson.
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