ACCT 241 Week 12 Assignment Help 4 | American University

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.
Income Statement—Bilge Pump
For the Quarter Ended March 31

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
company overhead, $1.60 depreciation
and, $0.75 supervision)

 

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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