Friday, 30 November 2018

Penagos Corporation is presently making part Z43 that is used in one of its products. A total of 5,000 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:

Penagos Corporation is presently making part Z43 that is used in one of its products. A total of 5,000 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:

 Per Unit
Direct materials$1.10
Direct labor$3.10
Variable overhead$6.90
Supervisor's salary$5.80
Depreciation of special equipment$5.20
Allocated general overhead$5.60


An outside supplier has offered to produce and sell the part to the company for $20.80 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. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided.

In addition to the facts given above, assume that the space used to produce part Z43 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 annual financial advantage (disadvantage) of buying part Z43 from the outside supplier and using the freed space to make more of the other product?

Multiple Choice

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:

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:

 Per Unit
Direct materials$3.70
Direct labor$3.60
Variable overhead$1.40
Supervisor's salary$4.00
Depreciation of special equipment$3.90
Allocated general overhead$4.10


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?
Multiple Choice

Ahrends Corporation makes 70,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

Ahrends Corporation makes 70,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

  
Direct materials$17.80 
Direct labor 19.00 
Variable manufacturing overhead 1.00 
Fixed manufacturing overhead 17.10 
Unit product cost$54.90 


An outside supplier has offered to sell the company all of these parts it needs for $48.50 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $273,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $8.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

What is the financial advantage (disadvantage) of purchasing the part rather than making it? (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow:

The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow:

  
Sales of 15,000 units$150,000 
Variable expenses 120,000 
Contribution margin 30,000 
Fixed expenses 40,000 
Net operating loss$(10,000)


If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable.

Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a $16,000 increase in the contribution margin received from these other toys. If all other conditions are the same, the financial advantage (disadvantage) from discontinuing the production and sale of Doombugs would be:
Multiple Choice

Vanik Corporation currently has two divisions which had the following operating results for last year:

Vanik Corporation currently has two divisions which had the following operating results for last year:

 Cork DivisionRubber Division
Sales$600,000 $350,000 
Variable costs 250,000  220,000 
Contribution margin 350,000  130,000 
Traceable fixed costs 160,000  110,000 
Segment margin 190,000  20,000 
Allocated common corporate fixed costs 80,000  45,000 
Net operating income (loss)$110,000 $(25,000)


Because the Rubber Division sustained a loss, the president of Vanik is considering the elimination of this division. All of the division’s traceable fixed costs could be avoided if the division was dropped. None of the allocated common corporate fixed costs could be avoided. If the Rubber Division was dropped at the beginning of last year, the financial advantage (disadvantage) to the company for the year would have been: 
Multiple Choice