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Exam 7: Incremental Analysis for Short-Term Decision Making

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Question 51

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Valley Inc.has three divisions,Almond,Grover and Oak.Following is the income statement for the previous year: Of the fixed costs,$300,000 is for corporate costs and is allocated equally to the three divisions. a.How much does Grover Division have in direct fixed costs? b.What is Grover Division's segment margin? c.What would Valley's profit margin be if Grover Division were dropped?

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a.$51,250 = $151,250 - ($300,000/3)
b.$9...

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Question 52

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Poppy has received a special order for 1,000 units of its product at a special price of $125.The product currently sells 18,000 units for $150 and has the following manufacturing costs: Assume that Poppy has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable. a.If Poppy accepts the order,what effect will the order have on the company's short-term profit? For the next two questions,now assume that Poppy has sufficient capacity to fill 500 units of the order without harming normal sales. b.If Poppy accepts the order and fills it completely,what effect will the order have on the company's short-term profit? c.If Poppy accepts the special order,what average price should Poppy charge to make a $10,000 incremental profit?

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a.$15,000 increase in profit = 1,000 × [...

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Question 53

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Dot has received a special order for 2,000 units of its product at a special price.The product normally sells for $200 and has the following manufacturing costs: Assume that Dot has sufficient capacity to fill the order without harming normal production and sales.What minimum price should Dot charge to achieve a $50,000 incremental profit?

Chafford,Inc.currently manufactures 2,000 subcomponents in one of its factories.The unit costs to produce the subcomponents are: Due to a labor strike,Chafford is considering purchasing the subcomponents from an outside supplier for $250 per unit.The union is demanding a 20% increase in pay for direct labor.Fixed overhead is not avoidable.How much could Chafford increase their pay before it would be more advantageous to purchase the subcomponents from the outside supplier?

Pinehurst,Inc.currently sells 20,000 units of its product per year for $200 each.Variable costs total $75 per unit.Pinehurst' manager believes that if a new machine is leased for $250,000 per year,modifications can be made to the product that will increase its retail value.These modifications will increase variable costs by $50 per unit,but Pinehurst is hoping to sell the modified units for $275 each. a.Should Pinehurst modify the units or sell them as is? How much will the decision affect profit? b.What is the least Pinehurst could charge for the modified units to make it worthwhile to modify them? c.The leasing company is willing to negotiate the price of the machine lease.What is the most Pinehurst would be willing to pay to lease the machine if they plan to charge $275 for the modified units?

A relevant cost is:

Manor,Inc.currently manufactures 1,000 subcomponents per month in one of its factories.The unit costs to produce the subcomponents are: Manor is considering purchasing the subcomponents from an outside supplier,who normally charges $300 per unit.The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join,but whose members can purchase the subcomponents for $250 per unit.Fixed overhead is not avoidable.How many units would Manor need to order per month to make it worth it to join the "Exclusive Buyer's Club"?

Cranberry has received a special order for 100 units of its product at a special price of $2,100.The product normally sells for $2,800 and has the following manufacturing costs: Assume that Cranberry has sufficient capacity to fill the order without harming normal production and sales.If Cranberry accepts the order,what effect will the order have on the company's short-term profit?

Managerial decision makers must often consider non-economic factors as well.For example,when considering whether to outsource to another country,in addition to considering the cost of that decision,managerial accountants with an emphasis on sustainability should consider the human capital impact as well.This represents sustainability within a:

Franklin,Inc.has two divisions,Seward and Charles.Following is the income statement for the previous year: Of the total fixed costs,$300,000 are common fixed costs that are allocated equally between the divisions.What is Seward's segment margin?

Pasadena Corp.produces three products,and currently has a shortage of machine hours since one of its two machines is down - only 360 hours are available this month.The selling price,costs,labor requirements,and demand of the three products are as follows: a.In what order should Pasadena prioritize production of the products? b.How many of each product should be sold while the machine is down to maximize profit? c.What is the total contribution margin if Pasadena prioritizes production according to its limited resources?

Cotton Corp.currently makes 10,000 subcomponents a year in one of its factories.The unit costs to produce are: An outside supplier has offered to provide Cotton Corp.with the 10,000 subcomponents at an $84.50 per unit price.Fixed overhead is not avoidable.If Cotton Corp.rejects the outside offer,what will be the effect on short-term profits?

The law firm of Regal and Porter is examining its client base to determine how profitable its regular clients are.Its analysis indicates that Hawthorne,Inc.paid $179,200 in fees last year,but cost the firm $208,600 ($168,000 in billable labor,supplies,and copying,and $40,600 in allocated common fixed costs) .If Regal and Porter dropped Hawthorne,Inc.as a client,and all fixed costs are unavoidable,how would profit be affected?

Underwood,Inc.manufactures two products.It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month.The table below lists the contribution margin,labor and machine time requirements,and demand for each product. What is the contribution margin per machine hour for Product A?

Reynolds Corp.produces three products,and currently has a shortage of machine hours since one of its two machines is down - only 460 hours are available this month.The selling price,costs,and labor requirements of the three products are as follows: a.What is the contribution margin per unit for each product? b.What is the contribution margin per machine hour for each product? c.Assume Reynolds has unlimited demand for each product.Which product should Reynolds focus on producing? d.What is the total contribution margin if Reynolds focuses as determined in part (c)?

Peach has received a special order for 10,000 units of its product.The product normally sells for $20 and has the following manufacturing costs: Assume that Peach has sufficient capacity to fill the order.What price should Peach charge to make a $10,000 incremental profit?

Manor,Inc.currently manufactures 1,000 subcomponents per month in one of its factories.The unit costs to produce the subcomponents are: Manor is considering purchasing the subcomponents from an outside supplier,who normally charges $300 per unit.The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join,but whose members can purchase the subcomponents for $250 per unit.Fixed overhead is not avoidable.If Manor chose to purchase the subcomponents using the cheaper of the two buying options,what would be the effect on profit?

Clay Inc.has two divisions,Myrtle and Laurel.Following is the income statement for the previous year: What would Clay's profit margin be if the Laurel division was dropped and all fixed costs are unavoidable?

Walnut has received a special order for 2,000 units of its product at a special price of $270.The product normally sells for $360 and has the following manufacturing costs: Walnut is currently operating at full capacity and cannot fill the order without harming normal production and sales.If Walnut accepts the order,what effect will the order have on the company's short-term profit?

Dundee Company currently produces three products from a joint process.The joint process has total costs of $250,000 per month.All three products,A,B & C,are immediately saleable as they come out of the joint process.Alternatively,any of the products could continue on with additional processing and be sold as a more complete product.The following information is available: Which of the products should be sold after further processing?