Supplprob_relevant_costs_11

Supplprob_relevant_costs_11 - 1 AMA ACCT2460 -...

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1 AMA ACCT2460 - Supplementary Problems - Relevant Costing Problem 1: Northern Company incurs the following costs per unit in producing 500,000 units of product N-1: Variable manufacturing cost $5.00 Sales Commission $1.00 Fixed manufacturing cost $2.00 Fixed non-manufacturing cost $1.00 Total Cost per unit $9.00 The normal selling price for N-1 is $10.00 per unit. Southern Company has placed a special order with Northern to buy 10,000 units for $7.00 per unit. The production and sale to Southern would not displace any regular sales of N- 1, and no sales commissions would be paid on Southern’s order. Northern is operating about the break-even point. By how much would the profit of Northern increase or decrease if Southern’s order is accepted? Problem 2: Chicago Company manufactures part no. 118 for use in the production of its final product. The costs per unit for 10,000 units of part no. 118 are as follows: Direct materials $4.00 Direct labour $24.00 Variable overhead $10.00 fixed overhead applied $8.00 Total costs per unit $46.00 New York Company has offered to sell Chicago Company 10,000 units of part no. 118 for $43 per unit. If Chicago Company accepts the offer, some of the facilities presently used to manufacture part no. 118 could be used to manufacture part no. 119. This would save $40,000 of relevant costs in the manufacture of part no. 119, and $3 per unit of fixed overhead applied to part no. 118 would be eliminated. By what amount would net relevant costs be increased or decreased if Chicago Company decides to buy part no. 118 from New York Company? Problem 3: Star Company has obsolete light fixtures in inventory with manufacturing cost of $60,000. The company can rework the fixtures for $20,000 and then sell them for $36,000. Alternatively, it can sell them as scrap for $12,000. Which alternative should Star Company choose? Problem 4: Computer Company manufactures 10,000 units of part C-1 annually for use in the production of minicomputers. The following costs are incurred at 10,000 units of production: Direct materials $20,000 Direct labour $50,000 Variable overhead $40,000 Fixed overhead $80,000 Total Cost $190,000 Disk Drive Company has offered to sell 10,000 units of C-1 to Computer Company for $14 per unit. If Computer Company accepts this offer, some of the facilities presently used to manufacture C-1 could be rented to a third party at an annual rental of $16,000. Should Computer Company accept Disk Drive Company’s offer? Problem 5: Southeast Company has an annual plant capacity of 2,000 units of product X, and the plant is currently operating at 50% of capacity (i.e., 1,000 units). Southeast is operating above the break-even point. Annual costs at a production level of 1,000 units are as follows: Variable manufacturing cost $10 per unit Fixed manufacturing cost $5 per unit Variable selling cost $1 per unit Fixed selling and administrative costs $5,000 per year The normal selling price per unit for product X is $25. Central Company has offered to buy 100 units of product X
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Supplprob_relevant_costs_11 - 1 AMA ACCT2460 -...

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