1) Intercontinentals special order requires 1,300 kilograms of genatope, a solid chemical regularly used in the companys products. The current stock of genatope is 10,000 kilograms at a book value of 9.40 p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 10.00 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 9.60 p when normal restocking takes place. Any order of genatope must be in the amount of 5,300 kilograms.

Required:

What is the relevant cost of genatope?

Total relevant cost: ________________ p

2)Tipton One-Stop Decorating sells paint and paint supplies, carpet, and wallpaper at a single-store location in suburban Des Moines. Although the company has been very profitable over the years, management has seen a significant decline in wallpaper sales and earnings. Much of this decline is attributable to the Internet and to companies that advertise deeply discounted prices in magazines and offer customers free shipping and toll-free telephone numbers. Recent figures follow.

	Paint and Supplies						Carpeting				Wallpaper
Sales		$	380,000				$	460,000			$	140,000
Variable costs		$	228,000				$	322,000			$	112,000
Fixed costs			56,000					75,000				45,000
Total costs		$	284,000				$	397,000			$	157,000
Operating income (loss)		$	96,000				$	63,000			$	(17,000	)

Tipton is studying whether to drop wallpaper because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur:

The vacated space will be remodeled at a cost of $12,400 and will be devoted to an expanded line of high-end carpet. Sales of carpet are expected to increase by $120,000, and the lines overall contribution margin ratio will rise by five percentage points.

Tipton can cut wallpapers fixed costs by 40 percent. Remaining fixed costs will continue to be incurred.

Customers who purchased wallpaper often bought paint and paint supplies. Sales of paint and paint supplies are expected to fall by 20 percent.

The firm will increase advertising expenditures by $25,000 to promote the expanded carpet line.

Required:

1-a. Calculate the income or loss if Tipton closes its wallpaper operation.

1-b. Should Tipton close its wallpaper operation?

2. Assume that Tiptons wallpaper inventory at the time of the closure decision amounted to $23,700. How would you have treated this additional information in making the decision?

3. What advantages might Internet- and magazine-based firms have over Tipton that would allow these organizations to offer deeply discounted pricesprices far below what Tipton can offer?

3) Casting Technology Resources (CTR) has purchased 10,000 pumps annually from Kobec, Inc. Because the price keeps increasing and reached $68.00 per unit last year, CTRs management has asked for an estimate of the cost of manufacturing the pump in CTRs facilities. CTR makes stampings and castings and has little experience with products requiring assembly.

The engineering, manufacturing, and accounting departments have prepared a report for management that includes the following estimate for an assembly run of 10,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed.

The report states that total costs for 10,000 units are estimated at $957,000, or $95.70 per unit. The current purchase price is $68.00 per unit, so the report recommends continued purchase of the product.

Components (outside purchases)	$	120,000
Assembly labor*		300,000
Manufacturing overhead		450,000
General and administrative overhead		87,000
Total costs	$	957,000

^*Assembly labor consists of hourly production workers.

Manufacturing overhead is applied to products on a direct-labor-dollar basis. Variable-overhead costs vary closely with direct-labor dollars.

Fixed overhead		50	%	of direct-labor dollars
Variable overhead		100	%	of direct-labor dollars
Manufacturing-overhead rate		150	%	of direct-labor dollars

General and administrative overhead is applied at 10 percent of the total cost of material (or components), assembly labor, and manufacturing overhead.

Required:

1-a. Was the analysis prepared by Casting Technology Resources engineering, manufacturing, and accounting departments correct?

1-b. Calculate the relevant cost per unit.

4) Manhattan Fashions, Inc., a high-fashion dress manufacturer, is planning to market a new cocktail dress for the coming season. Manhattan Fashions supplies retailers in the east and mid-Atlantic states.

Four yards of material are required to lay out the dress pattern. Some material remains after cutting, which can be sold as remnants. The leftover material also could be used to manufacture a matching cape and handbag. However, if the leftover material is to be used for the cape and handbag, more care will be required in the cutting operation, which will increase the cutting costs.

The company expects to sell 1,250 dresses. Market research reveals that dress sales will be 20 percent higher if a matching cape and handbag are available. The market research indicates that the cape and handbag will be salable only as accessories with the dress. The combination of dresses, capes, and handbags expected to be sold by retailers are as follows:

	Percent of Total
Complete sets of dress, cape, and handbag			70	%
Dress and cape			6
Dress and handbag			15
Dress only			9
Total			100	%

The material used in the dress costs $12.50 a yard, or $50.00 for each dress. The cost of cutting the dress if the cape and handbag are not manufactured is estimated at $20.00 a dress, and the resulting remnants can be sold for $5.00 per dress. If the cape and handbag are manufactured, the cutting costs will be increased by $9.00 per dress and there will be no salable remnants. The selling prices and the costs to complete the three items once they are cut are as follows:

	Selling Price per Unit			Unit Cost to Complete (excludes costs of material and cutting operation)
Dress	$	200.00		$	80.00
Cape		27.50			19.50
Handbag		9.50			6.50

Required:

Calculate Manhattan Fashions incremental profit or loss from manufacturing the capes and handbags in conjunction with the dresses.

Identify any qualitative factors that could influence the companys management in its decision to manufacture capes and handbags to match the dresses.