Accounting 1003 Homework: Assignment
1.A copier company has been using the same Copier A for 5 years. This copier can copy approximately 50 sheets a minute. The company has an opportunity to purchase a new Copier B that can process approximately 60 sheets a minute. The old machine will continue to be used for jobs that aren’t rush jobs. The new machine will create a need for additional fixed selling expenses, an additional supervisor, and the two employees to use the machine. No other fixed costs will change.
Please list out whether each of these costs are relevant ( R) or not relevant ( NR). Format your answer as follows: a) R, b) R, and so forth.
a. Copier revenue
b. Book value-Copier A
c. Disposal value-Copier A
d. Variable selling expenses
e. Fixed selling expenses
f. Depreciation of Copier A
g. General and administrative overhead fixed
h. Direct labor
i. Indirect labor
j. Market value of Copier B
2.Home Improvement Company, a retail home store, has two major divisions-outdoors and indoors. Here is the data on their income and expenses:
Total Indoor Outdoor
Sales $85,000 $50,000 $35,000
Variable expenses 35,000 15,000 20,000
Contribution margin 50,000 35,000 15,000
Advertising 5,000 2,000 3,000
Supervisor salaries 19,000 10,000 9,000
Store insurance 2,000 1,000 1,000
General administrative 11,000 8,000 3,000
Total fixed expenses 37,000 21,000 16,000
Net operating income (loss) $13,000 $14,000 (1,000)
Due to the loss, the general manager is considering closing the outdoor division and just focusing on the indoor division. If the division were closed, the supervisor salary and the advertising costs could be eliminated. Should the division be closed? Please show your computations to support your answer.
3.Lucky’s Long board Park manufactures its own long boards to use at their national long board skiing park. An outside supplier has offered to sell long boards to Lucky’s for $100 per unit. To evaluate this offer, Lucky’s has gathered the following information relating to its own cost of producing a long board internally:
Per Unit Total for 1,000 units
Direct materials $70 $70,000
Direct labor $22 $22,000
Variable manufacturing overhead $5 $5,000
Supervisors salaries $10 $10,000
Depreciation of machinery to make $8 $8,000
Fixed manufacturing overhead, $20 $20,000
Total cost $135 $135,000
Should the outside supplier’s offer be accepted? Show all computations.
4.Hancock Hoodies is considering a special order for 100 Hoodies for a local company party. The normal selling price of a hoodie is $30 and its unit product cost is $16 as shown below:
Direct materials $6
Direct labor $3
Manufacturing overhead $7
Unit Product cost $16
Most of the manufacturing overhead is fixed and unaffected by variations in how many hoodies are produced in a given period. However, $2 of the overhead is variable with respect to the number of hoodies produced. The customer who is interested in the special hoodies order would like a special silkscreen put onto the hoodies. This silkscreen would require additional materials costing $4 per hoodie and would require ordering of the design costing $100 that would have no other use once the special order is completed. This order would have no effect on the company’s regular sales, and the order could be fulfilled using the company’s existing capacity without affecting any other order.
What effect would accepting this order have on the company’s net operating income if a special price of $17 is offered per hoodie for this order? Should the company accept the order? Show computations.
5.Calibri Company produces three products: F, G, and H. The selling price, variable costs, and contribution margin for one unit of each product follow:
F G H
Selling price $40 $110 $50
Direct materials $16 $25 $20
Direct labor $11 $20 $12
Variable manufacturing $10 $10 $8
Total variable costs $37 $55 $40
Contribution margin $3 $55 $10
Contribution margin ratio 7.5% 50% 20%
One of two major machines used to produce these products has broken down and a new one is on backorder, so the company is down to one machine. Product F takes 0.20 machine hours to produce one unit, Product G takes 11 machine hours to produce one unit, and Product H takes 2.5 machine hours. There are 1,000 machine hours available on the new machine.
a. What is the amount of contribution margin that will be obtained per machine hour on each product?
b. Which product would you recommend that the company work on next week – the orders for product F, product G or product H? Show your computations.