June2017SupportPackage.pdf

212 correct answer c the relevant cost to make the

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212. Correct answer c. The relevant cost to make the ice-makers is \$600,000; to buy the units, the relevant cost is \$528,000 as shown below. Make: 20,000 x (\$34 - \$4*) = \$600,000 Buy: (\$28 x 20,000) – (\$80,000 x .4) = \$528,000 *The \$4 of remaining fixed overhead applies to both alternatives and there irrelevant to the decision. 213. Correct answer b. Sunshine should not use the manufacturer’s machine cost of \$.50 as it is based on 1.6 million units. Since Sunshine plans to produce 1.2 million units, the relevant cost is \$.67 (\$800,000 ÷ 1.2 million).

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305 214. Correct answer d. For Aril to benefit from purchasing the units rather than making the units, the purchase price must be less than \$14 as shown below. Remaining fixed cost/unit = (\$150,000 x .6) ÷ 30,000 = \$3 Relevant cost to make unit = \$3 + \$11 = \$14 215. Correct answer b. The \$50,000 trade-in allowance is relevant to Verla’s decision as it decreases the cash outflow at time zero when the machine is purchased. 216. Correct answer c. Jones should process Product C further because the incremental revenue exceeds the incremental cost. Product B should be sold at split-off as the incremental revenue is less than the incremental cost. Product C: [70,000 x (\$12.50 - \$10.25)] - \$140,000 = \$17,500 Product B: [20,000 x (\$8.00 - \$5.50)] - \$60,000 = (\$10,000) 217. Correct answer b. Oakes should continue to process Beracyl as the incremental revenue exceeds the incremental cost of processing; Mononate should be sold at split-off as the incremental revenue is less than the incremental cost of further processing. Beracyl: [60,000 x (\$18 - \$15)] - \$115,000 = \$65,000 Mononate: [40,000 x (\$10 - \$7)] - \$125,000 = (\$5,000) 218. Correct answer d. Whitman’s contribution margin will be \$380,000 if the Restaurant segment is discontinued as shown below. Contribution: = [.95 x (\$400,000 + \$500,000)] – [.95 x (\$300,000 + \$200,000)} = \$855,000 - \$475,000 = \$380,000 219. Correct answer d. Whitman’s segments have the following contribution margin rations: Merchandising \$500,000 - \$300,000 = \$200,000 ÷ \$500,000 = 40% Automotive \$400,000 - \$200,000 = \$200,000 ÷ \$400,000 = 50% Restaurant \$100,000 - \$70,000 = \$30,000 ÷ \$100,000 = 30% 220. Correct answer a. The costs relevant to this decision are the incremental costs of production of \$20,000 material and \$5,000 labor. The cost of the machinery is a sunk cost and therefore irrelevant. 221. Correct answer c. Reynolds should continue to produce and sell the fertilizer as it contributes \$2.50 (\$18.50 - \$12.25 - \$3.75) per bag toward coverage of fixed costs.
306 222. Correct answer c. Parklin’s operating income will go from \$500 to (\$1,500) if Segment B is closed, a decrease of \$2,000. Sales \$10,000 Variable cost of goods sold 4,000 Fixed cost of goods sold 2,500 (+\$1,000 from Segment B) Gross margin 3,500 Variable selling & admin. 2,000 Fixed selling & admin. 3,000 (\$1,500 from Segment B) Operating loss (\$1,500) 223. Correct answer b. Grapevine should consider items 1, 2, and 3. Item 1 will affect future revenue. Items 2 and 3 will be eliminated and lower Grapevine’s future costs. Item 4 will continue and is irrelevant. Items 5 and 6 are sunk costs and also irrelevant. 224. Correct answer c. The production and sale of the new dolls would decrease the company’s profit by \$39,200 as shown below. Contribution \$400,000 [10,000 x (\$100 - \$60)] Fixed costs 456,000 Operating income -56,000 Tax savings @30% 16,800 Net loss -\$39,000 225. Correct answer b. The company should continue the Oak Division as it is currently covering \$13,000 of its \$14,000 fixed costs. If the division is eliminated, \$7,000 of fixed costs will remain causing a \$6,000 decline in the company’s operating profit (\$7,000 - \$1,000).

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