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.
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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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