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Exam 13: Differential Analysis: the Key to Decision Making

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Question 191

True/False

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In a factory operating at capacity, every machine and person should be working at the maximum possible rate.

A) True
B) False

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Question 192

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Bruce Corporation makes four products in a single facility. These products have the following unit product costs: Additional data concerning these products are listed below. The grinding machines are potentially the constraint in the production facility. A total of 9,000 minutes are available per month on these machines.Direct labor is a variable cost in this company.Which product makes the MOST profitable use of the grinding machines? (Round your intermediate calculations to 2 decimal places.)

A) Product A
B) Product B
C) Product C
D) Product D

E) C) and D)
F) All of the above

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Question 193

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Mcfarlain Corporation is presently making part U98 that is used in one of its products. A total of 7,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce and sell the part to the company for $17.10 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally.In addition to the facts given above, assume that the space used to produce part U98 could be used to make more of one of the company's other products, generating an additional segment margin of $24,000 per year for that product. What would be the financial advantage (disadvantage) of buying part U98 from the outside supplier and using the freed space to make more of the other product?

The Carter Corporation makes products A and B in a joint process from a single input, R. During a typical production run, 50,000 units of R yield 20,000 units of A and 30,000 units of B at the split-off point. Joint production costs total $90,000 per production run. The unit selling price for A is $4.00 and for B is $3.80 at the split-off point. However, B can be processed further at a total cost of $60,000 and then sold for $7.00 per unit.If product B is processed beyond the split-off point, the financial advantage (disadvantage) as compared to selling B at the split-off point would be:

Minden Corporation estimates that the following costs and activity would be associated with the manufacture and sale of product A: If the company uses the absorption costing approach to cost-plus pricing described in the text and desires a 15% rate of return on investment (ROI) , the required markup on absorption cost for Product A would be closest to:

The Bharu Violin Corporation has the capacity to manufacture and sell 5,000 violins each year but is currently only manufacturing and selling 4,800. The following data relate to annual operations at 4,800 units: Woolgar Symphony Orchestra is interested in purchasing Bharu's excess capacity of 200 units but only if they can get the violins for $350 each. This special order would not affect regular sales or the total fixed costs.Assume that Bharu is manufacturing and selling at capacity (5,000 units) . Any special order will mean a loss of regular sales. Under these conditions if the special order from Woolgar Symphony Orchestra is accepted, the financial advantage (disadvantage) Bharu for the year should be:

The constraint at Rauchwerger Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? (Round your intermediate calculations to 2 decimal places.)

Lusk Corporation produces and sells 10,000 units of Product X each month. The selling price of Product X is $40 per unit, and variable expenses are $32 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $70,000 of the $120,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the monthly financial advantage (disadvantage) for the company of eliminating this product should be:

Two products, QI and VH, emerge from a joint process. Product QI has been allocated $31,300 of the total joint costs of $52,000. A total of 2,600 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $15 per unit, or it can be processed further for an additional total cost of $10,600 and then sold for $17 per unit. If product QI is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point?

Hanisch Corporation would like to use target costing for a new product it is considering introducing. At a selling price of $29 per unit, management projects sales of 40,000 units. The new product would require an investment of $400,000. The desired return on investment is 16%. The target cost per unit is closest to: (Do not round intermediate calculations.)

A new product, an automated crepe maker, is being introduced at Knutt Corporation. At a selling price of $38 per unit, management projects sales of 78,000 units. Launching the crepe maker as a new product would require an investment of $260,000. The desired return on investment is 15%. The target cost per crepe maker is closest to: (Round your answer to 2 decimal places.)

Hennig Plastics Equipment Corporation has developed a new injection mold-model XP-30-that has been designed to outperform a competitor's best-selling injection mold. Model XP-30 has a useful life of 60,000 hours of service and its operating cost is $1.20 per hour. In contrast, the competitor's product has a useful life of 30,000 hours of service and has operating costs that average $2.10 per hour. The competitor's injection mold sells for $149,000. Hennig has not yet established a selling price for model XP-30. From a value-based pricing standpoint what is XP-30's economic value to the customer over its 60,000 hour useful life?

Most of the opportunities to reduce the cost of a product come from outsourcing production to where labor is relatively inexpensive.

Anglen Company manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 14,400 trophies. The company normally charges $103 per trophy. Cost data for the current level of production are shown below: The company has just received a special one-time order for 900 trophies at $48 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Assume that direct labor is a variable cost.Required:Should the company accept this special order? Why?

Mae Refiners, Incorporated, processes sugar cane that it purchases from farmers. Sugar cane is processed in batches. A batch of sugar cane costs $60 to buy from farmers and $13 to crush in the company's plant. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $29 or processed further for $13 to make the end product industrial fiber that is sold for $61. The cane juice can be sold as is for $40 or processed further for $28 to make the end product molasses that is sold for $67.Which of the intermediate products should be processed further?

Drew Cane Products, Incorporated, processes sugar cane in batches. The company buys a batch of sugar cane from farmers for $90 which is then crushed in the company's plant at a cost of $11. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $21 or processed further for $13 to make the end product industrial fiber that is sold for $45. The cane juice can be sold as is for $41 or processed further for $29 to make the end product molasses that is sold for $103. What is the financial advantage (disadvantage) for the company from processing one batch of sugar cane into the end products industrial fiber and molasses rather than not processing that batch at all?

The Cook Corporation has two divisions-East and West. The divisions have the following revenues and expenses: The management of Cook is considering the elimination of the West Division. If the West Division were eliminated, its traceable fixed costs could be avoided. Total common corporate costs would be unaffected by this decision. Given these data, the elimination of the West Division would result in an overall company net operating income (loss) of:

Gordon Corporation produces 1,000 units of a part per year which are used in the assembly of one of its products. The unit cost of producing these parts is: The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from the outside supplier, two thirds of the total fixed costs incurred in producing the part can be avoided. The annual financial advantage (disadvantage) for the company as a result of buying the part from the outside supplier would be:

Cables Electronics Corporation has developed a new instrument-model XG-75-that has been designed to outperform a competitor's best-selling instrument. Model XG-75 has a useful life of 46,000 hours of service and its operating cost is $2.80 per hour. In contrast, the competitor's product has a useful life of 23,000 hours of service and has operating costs that average $5.40 per hour. The competitor's instrument sells for $160,000. Cables has not yet established a selling price for model XG-75. From a value-based pricing standpoint what is the reference value that Cables should consider when pricing model XG-75?

Bertucci Corporation makes three products that use the current constraint which is a particular type of machine. Data concerning those products appear below: Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized.(Round your intermediate calculations to 2 decimal places.)