Question Details

 It takes 3 pounds of direct materials to produce the Regular product and 5 pounds of direct materials to produce the Deluxe product. It is the company's policy to maintain an inventory of direct materials on hand at the end of each month equal to 30% of the next month's production needs for the Regular product and 20% of the next month's production needs for the Deluxe product. Direct materials inventory on hand at June 30 were 9,000 pounds for the Regular product and 15,000 pounds for the Deluxe product. The cost per pound of materials is $5 Regular and $7 Deluxe.

Instructions
Prepare separate direct materials budgets for each product for the third quarter of 2010.




2. Coyle Company manufactured 6,000 units of a component part that is used in its product and incurred the following costs:

	Direct materials	$35,000
	Direct labor	15,000
	Variable manufacturing overhead	10,000
	Fixed manufacturing overhead	  20,000
		$80,000

Another company has offered to sell the same component part to the company for $12 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm, Coyle Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $14,000.

Instructions
Prepare an incremental analysis report for Coyle Company which can serve as informational input into this make or buy decision.




3. Mercer has three product lines in its retail stores: books, videos, and music. Results of the fourth quarter are presented below:
	  Books		  Music		 Videos	             Total	
Units sold	1,000	2,000	2,000	5,000
Revenue	$22,000	$40,000	$23,000	$85,000
Variable departmental costs	17,000	22,000	12,000	51,000
Direct fixed costs	1,000	3,000	2,000	6,000
Allocated fixed costs	    7,000	    7,000	    7,000	  21,000
Net income (loss)	$ (3,000)	$  8,000	$  2,000	$  7,000

The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines.

Instructions
What will happen to profits if Mercer discontinues the Books product line?



4. Martinez Company has money available for investment and is considering two projects each costing $70,000. Each project has a useful life of 3 years and no salvage value. The investment cash flows follow:
	Project A	Project B
Year 1	$  8,000	$28,000
Year 2	24,000	28,000
Year 3	52,000	28,000

Instructions
If 8% is an acceptable earnings rate, which project should be selected? Justify your response.

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