# The accounting department supplied the following unit

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Chapter 3 / Exercise 48
Elementary and Intermediate Algebra: Algebra Within Reach
Larson
Expert Verified
before every batch of metallic. The accounting department supplied the following unit costs:Direct materials\$0.40Direct labor0.15Variable overhead0.06Fixed overhead*0.50
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Chapter 3 / Exercise 48
Elementary and Intermediate Algebra: Algebra Within Reach
Larson
Expert Verified
*Fixed overhead is applied on the basis of a plantwide rate based on direct labor hours and are unavoidable costs.Refer to Figure 23-11.A. Based on the cost figures, if Goutam purchases metallic ink from the outside supplier, operating income will be \$__________________ Higher or Lower?B. What is the highest price per ounce that Goutam would pay an outside supplier for the ink?131. Figure 23-11.Goutam Company prints a variety of publications and colored inserts for newspapers. Currently, Goutam produces its own ink, including a special metallic color. India Inks has offered to supply Goutam with the 25,000 ounces of metallic ink that it needs each year for \$1.24 per ounce. Goutam is interested because this is a particularly difficult ink to make. The purchasing department must make special efforts to locate suppliers, the metallic component requires special handling, and, since the metallic ink uses machinerythat is also used to make other colors of ink, the machinery must be cleaned very well before every batch of metallic. The accounting department supplied the following unit costs:Direct materials\$0.40Direct labor0.15Variable overhead0.06Fixed overhead*0.50*Fixed overhead is applied on the basis of a plantwide rate based on direct labor hours and are unavoidable costs.Refer to Figure 23-11. Upon hearing of the analysis of the cost of making the metallic ink in-house versus buying it from an outside supplier, Jim Webb, the production supervisor said “That’s nuts! This ink is a real pain to make and \$1.24 per ounce sounds like a bargain to me!” Based on Jim’s feelings, Anna Ruiz (a new CMA in the accounting office) did an ABC analysis of ink production. She came up with the same direct materials, direct labor and variable overhead,as well as the following information on activities required by metallic ink production.Setups\$ 60,000600 setups per yearPurchasing \$270,0009,000 purchase orders per year
The metallic ink requires 300 purchase orders per year and 80 setups.A. If Goutam purchases the ink from the outside supplier, operating income would be \$__________________ Higher Lower (circle one)B. What is the highest price per ounce that Goutam would pay an outside company for the ink?132. Sherpa Company manufactures tents and sleeping bags. Tents are priced at \$80, have variable cost of \$55, and direct fixed costs of \$120,000. Sleeping bags are priced at\$60, have variable cost of \$35, and direct fixed costs of \$66,000. Common fixed costs equal \$200,000. Last year, the division sold 5,000 tents and 10,000 sleeping bags.A. What was the segment margin for tents last year? B. What was the segment margin for sleeping bags last year?C. What was Sherpa’s operating income last year?D. If Sherpa stopped making tents, what would operating income be? 133. Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of \$38 each. Tapeo uses 18,000 units of these components each year. The cost per unit of this component is as follows:Direct material\$13.75Direct labor\$16.00Variable overhead\$7.00Fixed overhead\$8.25Total\$45.00