Chapter 13 Solutions to Cornerstone Exercises

Chapter 13 Solutions to Cornerstone Exercises - Chapter 13...

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Chapter 13 – Solutions to Cornerstone Exercises Cornerstone Exercise 13–13 1. There are two alternatives: make the ingredient in-house or purchase it externally. 2. Relevant costs of making the ingredient in-house include direct materials, direct labor, and variable overhead (both manufacturing and marketing in nature). Relevant costs of purchasing the ingredient externally include the purchase price. 3. Alternatives Differential Make Buy Cost to Make Direct materials $25,000 $25,000 Direct labor 15,000 15,000 Variable manufacturing overhead 7,500 7,500 Variable marketing overhead 10,000 10,000 Purchase cost $60,000 (60,000 ) Total relevant cost $57,500 $60,000 $ (2,500 ) It is cheaper to make the ingredient in-house. This alternative is cheaper by $2,500. 4. Alternatives Differential Make Buy Cost to Make Direct materials $25,000 $25,000 Direct labor 15,000 15,000 Variable manufacturing overhead 7,500 7,500 Variable marketing overhead 10,000 10,000 Avoidable fixed plant overhead 12,000 a 12,000 Purchase cost $60,000 (60,000 ) Total relevant cost $69,500 $60,000 $ 9,500 Now it is cheaper to purchase the ingredient. This alternative is cheaper by $9,500. a $12,000 = $30,000 × 0.40
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Cornerstone Exercise 13–14 1. Relevant costs and benefits of accepting the special order include the sales price of $4, direct materials, direct labor, and variable overhead. No relevant costs or benefits are attached to rejecting the order. 2. If the problem is analyzed on a unit basis: Differential Benefit to Accept Reject Accept Price $ 4.00 $ — $ 4.00 Direct materials (1.50) (1.50) Direct labor (2.00) (2.00) Variable overhead (1 .00 ) (1 .00 ) Decrease in operating income $ (0 .50 ) $ 0 $ (0 .50 ) Operating income will decrease by $5,000 [($0.50) × 10,000 units] if the special
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Chapter 13 Solutions to Cornerstone Exercises - Chapter 13...

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