ACCT 241 Week 12 Assignment Help 4 | American University
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- 09 Aug 2019
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ACCT 241 Week 12 Assignment Help 4 | American University
1.
Thalassines
Kataskeves, S.A., of Greece makes marine equipment. The company has been
experiencing losses on its bilge pump product line for several years. The most
recent quarterly contribution format income statement for the bilge pump
product line follows:
Thalassines
Kataskeves, S.A. |
||||||
Sales |
|
|
|
$ |
850,000 |
|
Variable
expenses: |
|
|
|
|
|
|
Variable
manufacturing expenses |
$ |
330,000 |
|
|
|
|
Sales
commissions |
|
42,000 |
|
|
|
|
Shipping |
|
18,000 |
|
|
|
|
Total
variable expenses |
|
|
|
|
390,000 |
|
Contribution
margin |
|
|
|
|
460,000 |
|
Fixed
expenses: |
|
|
|
|
|
|
Advertising
(for the bilge pump product line) |
|
270,000 |
|
|
|
|
Depreciation
of equipment (no resale value) |
|
80,000 |
|
|
|
|
General
factory overhead |
|
105,000 |
* |
|
|
|
Salary
of product-line manager |
|
32,000 |
|
|
|
|
Insurance
on inventories |
|
8,000 |
|
|
|
|
Purchasing
department |
|
45,000 |
† |
|
|
|
Total
fixed expenses |
|
|
|
|
540,000 |
|
Net
operating loss |
|
|
|
$ |
(80,000 |
) |
|
*Common
costs allocated on the basis of machine-hours.
†Common
costs allocated on the basis of sales dollars.
Discontinuing
the bilge pump product line would not affect sales of other product lines and
would have no effect on the company’s total general factory overhead or total
Purchasing Department expenses.
2.
“In
my opinion, we ought to stop making our own drums and accept that outside
supplier’s offer,” said Wim Niewindt, managing director of Antilles Refining,
N.V., of Aruba. “At a price of $18 per drum, we would be paying $5 less than it
costs us to manufacture the drums in our own plant. Since we use 60,000 drums a
year, that would be an annual cost savings of $300,000.” Antilles Refining’s
current cost to manufacture one drum is given below (based on 60,000 drums per
year):
|
|
|
Direct
materials |
$ |
10.35 |
Direct
labor |
|
6.00 |
Variable
overhead |
|
1.50 |
Fixed
overhead ($2.80 general |
|
5.15 |
Total
cost per drum |
$ |
23.00 |
|
A
decision about whether to make or buy the drums is especially important at this
time because the equipment being used to make the drums is completely worn out
and must be replaced. The choices facing the company are:
Alternative
1 : Rent new equipment and continue to make the drums. The equipment would be
rented for $135,000 per year.
Alternative
2 : Purchase the drums from an outside supplier at $18 per drum.
The
new equipment would be more efficient than the equipment that Antilles Refining
has been using and, according to the manufacturer, would reduce direct labor
and variable overhead costs by 30%. The old equipment has no resale value.
Supervision cost ($45,000 per year) and direct materials cost per drum would
not be affected by the new equipment. The new equipment’s capacity would be
90,000 drums per year.
The
company’s total general company overhead would be unaffected by this decision.
Required:
1.
Assuming that 60,000 drums are needed each year, what is the financial
advantage (disadvantage) of buying the drums from an outside supplier?
2.
Assuming that 75,000 drums are needed each year, what is the financial
advantage (disadvantage) of buying the drums from an outside supplier?
3.
Assuming that 90,000 drums are needed each year, what is the financial
advantage (disadvantage) of buying the drums from an outside supplier?
3
Polaski
Company manufactures and sells a single product called a Ret. Operating at
capacity, the company can produce and sell 30,000 Rets per year. Costs
associated with this level of production and sales are given below:
|
Unit |
|
Total |
||||
Direct
materials |
$ |
15 |
|
|
$ |
450,000 |
|
Direct
labor |
|
8 |
|
|
|
240,000 |
|
Variable
manufacturing overhead |
|
3 |
|
|
|
90,000 |
|
Fixed
manufacturing overhead |
|
9 |
|
|
|
270,000 |
|
Variable
selling expense |
|
4 |
|
|
|
120,000 |
|
Fixed
selling expense |
|
6 |
|
|
|
180,000 |
|
Total
cost |
$ |
45 |
|
|
$ |
1,350,000 |
|
|
The
Rets normally sell for $50 each. Fixed manufacturing overhead is $270,000 per
year within the range of 25,000 through 30,000 Rets per year.
Required:
1.
Assume that due to a recession, Polaski Company expects to sell only 25,000
Rets through regular channels next year. A large retail chain has offered to
purchase 5,000 Rets if Polaski is willing to accept a 16% discount off the
regular price. There would be no sales commissions on this order; thus,
variable selling expenses would be slashed by 75%. However, Polaski Company
would have to purchase a special machine to engrave the retail chain’s name on
the 5,000 units. This machine would cost $10,000. Polaski Company has no
assurance that the retail chain will purchase additional units in the future.
What is the financial advantage (disadvantage) of accepting the special order?
2.
Refer to the original data. Assume again that Polaski Company expects to sell
only 25,000 Rets through regular channels next year. The U.S. Army would like
to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee
of $1.80 per Ret, and it would reimburse Polaski Company for all costs of
production (variable and fixed) associated with the units. Because the army
would pick up the Rets with its own trucks, there would be no variable selling
expenses associated with this order. What is the financial advantage
(disadvantage) of accepting the U.S. Army's special order?
3.
Assume the same situation as described in (2) above, except that the company
expects to sell 30,000 Rets through regular channels next year. Thus, accepting
the U.S. Army’s order would require giving up regular sales of 5,000 Rets.
Given this new information, what is the financial advantage (disadvantage) of
accepting the U.S. Army's special order?
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