A.
Connecticut Chemical Company is a diversified chemical processing company. The firm manufactures swimming pool chemicals, chemicals for metal processing, specialized chemical compounds, and pesticides. Currently, the Noorwood plant is producing two derivatives, RNA-1 and RNA-2, from the chemical compound VDB developed by the company's research labs. Each week, 1,200,000 pounds of VDB are processed at a cost of $246,000 into 800,000 pounds of RNA-1 and 400,000 pounds of RNA-2. The proportion of these two outputs cannot be altered, because this is a joint process. RNA-1 has no market value until it is converted into a pesticide with the trade name Fastkil. Processing RNA-1 into Fastkil costs $240,000. Fastkil wholesales at $50 per 100 pounds. RNA-2 is sold as is for $80 per hundred pounds. However, management has discovered that RNA-2 can be converted into two new products by adding 400,000 pounds of compound LST to the 400,000 pounds of RNA-2. This joint process would yield 400,000 pounds each of DMZ-3 and Pestrol, the two new products. The additional direct-material and related processing costs of this joint process would be $120,000. DMZ-3 and Pestrol would each be sold for $57.50 per 100 pounds. The company's management has decided not to process RNA-2 further based on the analysis presented in the following schedule. New Joint Products RNA-2 DMZ-3 Pestrol Total Production in pounds 400, 000 400, 000 400, 000 Revenue $320,000 $230, 000 $230, 000 $460,000 Costs: VDB costs $ 82,000* $ 61, 500 $ 61, 500 $123,000+ Additional direct materials (LST) and 60, 000 60,000 120,000 processing of RNA-2 Total costs $ 82,000 $121, 500 $121, 500 $243,000 Weekly gross profit $238, 000 $108, 500 $108, 500 $217,000 *$82,000 is one-third of the $246,000 cost of processing VDB. When RNA-2 is not processed further, one-third of the final output is RNA-2 (400,000 out of a total of 1,200,000 pounds). "$123,000 is one-half of the $246,000 cost of processing VDB. When RNA-2 is processed further, one-half of the final output consists of DMZ-3 and Pestrol. The final products then are: 800,000 pounds of RNA-1; 400,000 pounds of DMZ-3; and 400,000 pounds of Pestrol.Required: a. Did management make the correct decision? b. What is the gross savings or loss per week resulting from the decision not to process RNA2 further, if different from management's analysis? Complete this question by entering your answers in the tabs below. ' Required A Required B Did management make the correct decision? Did management make the correct decision? | | Required: a. Did management make the correct decision? b. What is the gross savings or loss per week resulting from the decision not to process RNA2 further, if different from management's analysis? Complete this question by entering your answers in the tabs below. Required A Required B What is the gross savings or loss per week resulting from the decision not to process RNA2 further, if different from managementsanalYSIs? ................................................................................................................................................................................................................. l l I per week Chenango Industries uses 11 units of part JR63 each month in the production of radar equipment. The cost of manufacturing one unit ofJR63 is the following: Direct material $ 3,566 Material handling (26% of direct-material cost) 766 Direct labor 38,666 Manufacturing overhead (158% of direct labor) 57,666 Total manufacturing cost $ 99,266 Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Chenango Industries' annual manufacturing overhead budget is onethird variable and twothirds xed. Scott Supply, one of Chenango Industries' reliable vendors, has offered to supply part number JR63 at a unit price of $63,000. Required: 1. If Chenango Industries purchases the JR63 units from Scott, the capacity Chenango Industries used to manufacture these parts would be idle. Should Chenango Industries decide to purchase the parts from Scott, the unit cost of JR63 would increase (or decrease) by what amount? 2. Assume Chenango Industries is able to rent out all its idle capacity for $93,000 per month. If Chenango Industries decides to purchase the 11 units from Scott Supply. Chenango's monthly cost for JR63 would increase (or decrease) by what amount? 3. Assume that Chenango Industries does not wish to commit to a rental agreement but could use its idle capacity to manufacture another product that would contribute $177,000 per month. If Chenango's management elects to manufacture JR63 in order to maintain quality control, what is the net amount of Chenango's cost from using the space to manufacture part JR63? Required 1 Required 2 Required 3 Assume that Chenango Industries does not wish to commit to a rental agreement but could use its idle capacity to manufacture another product that would contribute $177,000 per month. If Chenango's management elects to manufacture JR63 in order to maintain quality control, what is the net amount of Chenango's cost from using the space to manufacture part JR63? Show less A
