Scribd Logo
Upload

Welcome to Scribd!

  • 10 views

    Assignment

    Uploaded by

    Kez

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Assignment

    Uploaded by

    Kez
    10 views3 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    10 views3 pages

    Assignment

    Uploaded by

    Kez

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    1. FOR THE AGES INC.

    Required:
    A. Identify all relevant costs that Wood should consider in deciding whether to accept the special
    order.
    Answer: 4,670 RELEVANT COSTS
    Solution:
    Material (250x3) 750
    Direct Labor (350x3) 1,050
    Variable Overhead (90x3) 270
    Lost Contribution Margin (20x(230-100)) 2,600
    TOTAL RELEVANT COSTS 4,670

    B. Assume the retailer offers to pay For The Ages a total of P3,800 for the three stands. How
    would accepting this offer affect For The Ages’ pre-tax income?
    Answer: Accepting the order will decrease the pre-tax income by 870.
    Solution:
    Sales from Special Offer 3,800
    Less: relevant costs
    Materials 750
    Labor 1,050
    Variable Overhead 270
    Avoidable (20x130) 2,600 4,670
    Decrease in Income 870

    2. OPERATIONS OF BORDERLAND OIL DRILLING SERVICES


    Required:
    A. If the U.S division had been eliminated at the beginning of the year, what would have been
    Borderland’s pretax income?
    Answer: 1,768,000 loss
    Solution: Operating Income Mexico Division: 132,000
    Corporate Fixed Cost US Division: (1,900,000)
    Loss (1,768,000)
    3. AB MANUFACTURING
    Required:
    A. If AB can sell as many units of either product as it can make with its limited supply of grinding
    machines, which product should AB make and what will AB’s total contribution margin be per
    month if it makes that product?
    Answer: Product B; 6,000 contribution margin
    Solution:
    Product A Product B
    Units that can be produced (200x10)/2 = 1,000 units (200x10)/2.5 = 800 units
    Contribution Margin 1,000 units x 11 = 11,000 800 units x 17.5 = 14,000
    1,000 units x 7 = 7,000 800 units x 10 = 8,000
    4,000 6,000

    B. The selling price of product B has only recently risen to P17.50. AB’s managers how estimate
    that the maximum sales volume of B at that price is 9,000 units per year. They also believe
    that at the P11 price, they can sell all of Product A they can make. How should AB use its
    grinding machine capacity over the coming year? (That is, how many of each product should
    AB produce?)

    Answer: A = 750 units and B = 9,000 units

    Solution: The goal is to maximize the number of Product B units that can be produced and
    allocate the remaining grinding time to Product A. Thus,
    10 machines x 200 hrs/month x 12 mo/year = 24,000 available hours
    Allocation: Product B: 9,000 units x 2.5 hrs = 22,500
    Product A: 750 units x 2hrs = 1,500

    4. STOWERS CORPORATION
    Required:
    At the beginning of the current year, Stowers decided to process all three products beyond the
    split-off point. If the company desired to maximize income, did it err regarding its decision with
    product J? Product K? Product L? By how much?

    Answer:
    The company erred in processing K beyond the split point and lost 50,000 in the process.

    Solution:
    J: (550,000 – 400,000) vs 130,000 = 20,000
    K: (540,000 – 350,000) vs 240,000 = -50,000
    L: (975,000 – 850,000) vs 118,000 = 7,000
    5. BATAAN COMPANY
    Required:
    A. What would be the net advantage (disadvantage) to the company if management decides to
    shutdown?
    Answer: (Net Disadvantage of 255,000)
    Solution:
    CONTINUE SHUTDOWN
    Income at 100,00 units: Loss if the company decides to shutdown:
    Contribution margin (100,000x3) 300,000 Fixed overhead (2 x ¾ x 100k) 150,000
    Less fixed costs (240,000) Selling and ad (40k x ¾) 30,000
    Additional costs 15,000
    Income if continued 60,000 Loss in shutdown 195,000
    Thus, - 195,000 – 60,000 = -255,000 net disadvantage

    B. Compute for the shutdown point in units.


    Answer: 15,000
    Solution:
    Fixed Costs
    Manufacturing Overhead 200,000
    Selling and administrative 40,000
    Total 240,000
    Less Shutdown Costs
    Manufacturing Overhead (2 x ¾ x 100k) 150,000
    Selling and administrative (40k x ¾) 30,000
    Additional Shutdown costs 15,000
    Total (195,000)
    Difference 45,000
    Divided by Contribution Margin per unit 3
    SHUTDOWN POINT IN UNITS 15,000

    C. What if the company can only sell 14,000 units, should the company continue or shutdown?
    Answer: Shutdown because this is lower than the shutdown point.

    You might also like