M5 Problems E25-10 E25-13 E25-18 E25-15 CP25-34
Please complete the following exercises and/or problems from the textbook:
Prepare your answers in an Excel workbook, using one worksheet per exercise or problem.
E25-10 Making special pricing decisions
Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Hobby-Cardz with a special order. The Hall of Fame wishes to purchase 57,000 baseball card packs for a special promotional campaign and offers $0.41 per pack, a total of $23,370. Hobby-Cardz’s total production cost is $0.61 per pack, as follows:
Direct materials $ 0.13
Direct labor 0.06
Variable overhead 0.12
Fixed overhead 0.30
Total cost $ 0.61
Hobby-Cardz has enough excess capacity to handle the special order.
E25-13 Making dropping a product decisions
Top managers of Movie Street are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision:
For the Year Ended December 31, 2014
Total Blu-Ray Disc DVD Disc
Sales Revenue $432,000 $305,000 $127,000
Variable Costs 246,000 150,000 96,000
Constribution Margin 186,000 155,000 31,000
Manufacturing 128,000 71,000 57,000
Selling and Administrative 67,000 52,000 15,000
Total Fixed Expenses 195,000 123,000 72.000
Operating Income (Loss) $(9,000) $32,000 $(41,000)
Total fixed costs will not change if the company stops selling DVDs.
1. Prepare a differential analysis to show whether Movie Street should drop the DVD product line.
2. Will dropping DVDs add $41,000 to operating income? Explain.
E25-15 Making product mix decisions
Lifemaster produces two types of exercise treadmills: regular and deluxe. The exercise craze is such that Lifemaster could use all its available machine hours to produce either model. The two models are processed through the same production departments. Data for both models is as follows:
Sale Price 1,020 560
Direct Material 300 90
Direct Labor 88 188
Variable Manufacturing Overhead 264 88
Fixed Manufacturing Overhead* 138 46
Variable Operating Expenses 111 65
Total Costs 901 477
Operating Income $119 $83
*allocated on the basis of machine hours
1. What is the constraint?
2. Which model should Lifemaster produce? (Hint: Use the allocation of fixed manufacturing overhead to determine the proportion of machine hours used by each product.)
3. If Lifemaster should produce both models, compute the mix that will maximize operating income.
E25-18 Making outsourcing decisions
Fiber Systems manufactures an optical switch that it uses in its final product. The switch has the following manufacturing costs per unit:
Direct Material $ 9.00
Direct Labor 1.50
Variable Overhead 5.00
Fixed Overhead 9.00
Manufacturing Product Cost $ 24.50
Another company has offered to sell Fiber Systems the switch for $18.50 per unit.
If Fiber Systems buys the switch from the outside supplier, the manufacturing facilities that will be idled cannot be used for any other purpose, yet none of the fixed costs are avoidable. Prepare an outsourcing analysis to determine whether Fiber Systems should
P25-34 Making sell or process further decisions
This problem continues the Davis Consulting, Inc. situation from Problem P24-37 of Chapter 24. Davis Consulting provides consulting services at an average price of $175 per hour and incurs variable costs of $100 per hour. Assume average fixed costs are $5,250 a month.
Davis has developed new software that will revolutionize billing for companies.
Davis has already invested $200,000 in the software. It can market the software as is at $30,000 per client and expects to sell to eight clients. Davis can develop the software further, adding integration to Microsoft products at an additional development cost of $120,000. The additional development will allow Davis to sell the software for $38,000 each, but to 20 clients. Should Davis sell the software as is or develop it further?