1. Jacob Fabrics manufactures quality both towels at its highly automated plant. The plant has a production capacity of 48,000 towels each month. Current monthly production is 30,000 towels. The manufacturing costs per unit consist of the following : Variable cost($) Fixed cost ($) Total cost ($) Direct materials 6.00 0 6.00 Direct manufacturing labour 0.50 1.5 2.00 Manufacturing overhead 1.00 3.00 4.00 Manufacturing costs 7.50 4.50 12.00 The marketing costs per unit are $7($5 of which is variable). As a result of a strike at its existing towel supplier, a luxury hotel chain has offered to buy 5,000 towels from Jacob Fabrics at $11 per towel. No subsequent sales to this customer are anticipated. Fixed manufacturing costs are tied to the 48,000 towel production capacity. The acceptance of this special order is not expected to affect the selling price or the quantity of towels sold to regular customers. Should Jacob accept the hotel chain's offer?2. The Cerine Company manufactures thermostats consisting of relays. switches. and valves - for home and industrial use. Carine makes its own switches. The following table reports the current costs for HDS, its heavy duty switch. based on the analysis of its various manufacturing activities. Total current Cunent cost cost -' parunit($) producing 10.000 unit (3) IE_IE_ Variable manufacturing 40.000 40.000 overhead costs for power and utilities Mixed (variable and 17.500 1.75 20.000 fixed) manufacturing overhead costs of ...... W m---- setu - Fixed manufacturing 30.000 30.000 overhead costs of plant lease. insurance. and adninistration costs? Material handlings and set up activities occur each time batch of H08 is made. Carine produces 20,000 units if H08 in 25 batches of 400 units each. The number of batches is the cost driver for these costs. Total materials handing and set up costs equal xed cost of $5.000 plus $500 variable cost per batch ($5.000 + (25 x $500) - $17,500). Carine commences production alter it receives customer order. Carine anticipates that next year . the 10.000 units of HDS expected to be sold will be manufactured in 50 batches of 3200 units each. Through continuous improvement. Carine expects to reduce variable cost per batch for materials handling and sat up to $300. No other changes in xed cost or variable costs per unit are anticipated. Another manufacture offers to sell Carine 10.000 units of H08 next year for $16 per unit on whatever delivery schedule Carine wants. Assume that financial factors predominate in this make or buy decision, should Carine make or buy HOS? 3. Continuing from question no 2. Suppose that Cerine buys HDS from outside supplier, Cerine best use of the available capacity is to produce 5,000 units of RS, a regular switch , for Tredy Company. John, the accountant at Cerina, estimates the following future revenues and future costs if RS is manufactured and sold : Additional future revenue $80,000 Additional future costs Direct materials $30,000 Direct labour 5,000 Variable overhead 15,000 Materials handling and setup overheads 5,000 Total additional future costs 55,000 Additional future operating income 25,000 Cerine can make either HDS or RS, but not both. What should Cerine do?4. Tornado Company is considering replacing a metal cutting machine with a newer model. The new machine is more efficient than is the old machine, but it has a shorter overall life. Revenues from aircraft parts ($1.1 million per year) will be unaffected by the replacement decision. Summary data on existing (old) machine and the replacement (new) machine follow : Old existing machine New replacement machine Original cost $1,000,000 $600,000 Useful life 5 years 2 years Current age 3 years 0 years Remaining useful life 2 years 2 years Accumulated depreciation $600,000 Not acquired yet Book value $400,000 Not acquired yet Current disposal price (in cash) $40,000 Not acquired yet Terminal disposal price ( in cash 2 years| 0 $0 from now ) Annual operating costs (maintenance, $800,000 $460,000 energy, repairs, coolants, and so on) Tornado uses straight line depreciation. To focus on the main concept of relevance, ignore time value of money and income taxes. Should Tornado replace its existing machine