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BADM 2010 Chapter 12 - Lecture Discussion Problem 1 - CL

This document contains 5 problems related to managerial accounting. Problem 1 involves analyzing product costs and machine constraints to determine which product a company should emphasize. Problem 2 examines whether a company should make or buy an axial tap part. Problem 3 calculates the impact on operating income if one of a retailer's stores is closed. Problem 4 compares the costs and benefits of purchasing a new lens grinder machine. Problem 5 analyzes a joint production process and determines which products should be further processed.

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53 views3 pages

BADM 2010 Chapter 12 - Lecture Discussion Problem 1 - CL

This document contains 5 problems related to managerial accounting. Problem 1 involves analyzing product costs and machine constraints to determine which product a company should emphasize. Problem 2 examines whether a company should make or buy an axial tap part. Problem 3 calculates the impact on operating income if one of a retailer's stores is closed. Problem 4 compares the costs and benefits of purchasing a new lens grinder machine. Problem 5 analyzes a joint production process and determines which products should be further processed.

Uploaded by

Kaviya Kugan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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L

Managerial Accounting - BADM2010


Chapter 12

1) Redner, Inc. produces three products. Data concerning the selling prices and unit costs of the three products appear
below:

Fixed costs are applied to the products on the basis of direct labour hours.

Demand for the three products exceeds the company's productive capacity. The grinding machine is the constraint,
with only 2,400 minutes of grinding machine time available this week.

Required:

a) Given the grinding machine constraint, which product should be emphasized? Support your answer with
appropriate calculations.
b) If there is still unfilled demand for the product that the company should emphasize in part a) above, up to how
much should the company be willing to pay for an additional hour of grinding machine time?

2) Kramer Company makes 4,000 units per year of a part called an axial tap for use in one of its products. Data
concerning the unit production costs of the axial tap follow:

An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer Company decided
to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided.
Assume that direct labour is a variable cost.

Required:

a) Assume Kramer Company has no alternative use for the facilities presently devoted to production of the axial taps.
If the outside supplier offers to sell the axial taps for $65 each, should Kramer Company accept the offer? Fully
support your answer with appropriate calculations.
b) Assume that Kramer Company could use the facilities presently devoted to production of the axial taps to expand
production of another product that would yield an additional contribution margin of $80,000 annually. What is the
maximum price Kramer Company should be willing to pay the outside supplier for axial taps?

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3) Northern Stores is a retailer in British Columbia. The most recent monthly income statement for Northern Stores is
given below:

Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue
to be incurred. Also, the closing of Store I would result in a 20% decrease in sales in Store II. Northern allocates
common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut
down.

Required:

Compute the overall increase or decrease in the operating income of Northern Stores if Store I is closed.

4) Madison Optometry is considering the purchase of a new lens grinder to replace a machine that was purchased
several years ago. Selected information on the two machines is given below:

Ignore income taxes and the time value of money in this problem.

Required:

Compute the total advantage or disadvantage of using the new machine instead of the old machine over the next four
years.

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5) Bowen Company produces products P, Q, and R from a joint production process. Each product may be sold at the
split-off point or be processed further. Joint production costs of $81,000 per year are allocated to the products based
on the relative number of units produced. Data for Bowen's operations for the current year are as follows:

Product P can be processed beyond the split-off point for an additional cost of $10,000 and can then be sold for
$50,000. Product Q can be processed beyond the split-off point for an additional cost of $35,000 and can then be sold
for $65,000. Product R can be processed beyond the split-off point for an additional cost of $6,000 and can then be
sold for $25,000.

Required:

Which products should be processed beyond the split-off point?

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