Cans Inc. is considering purchasing component YY instead if producing it in-house. Component YY can be purchased for $207. The following cost information pertains to the production of component YY. Cans Inc. uses 75,000 components per year. Direct Materials $100.80 Direct Labor (10 minutes per part) ($18 per hour) $3 Variable OH $4.60 Fixed OH $234,000 Depreciation $32,420 Prepare an incremental analysis to determine if component YY should continue to be produced in-house or purchased from an outside vendor. Make Buy Difference Direct Materials Direct Labor VOH Purchase Price Total Cost What are some qualitative considerations Cans Inc. should make?A B D E G H M N Sports R Us produces basketballs. Recently the local in-house team contacted them about purchasing 2,000 basketballs and has agreed to pay $18 per ball 2 plus $3 per ball for shipping. The current year's production is 22,000 basketballs and total capacity is 25,000 balls. The following costs pertain to the 3 production of basketballs. 4 Direct Materials $9.20 5 Direct Labor $4.00 6 VOH $3.80 FOH $4 8 Cost per ball $20.64 9 10 Prepare an incremental analysis. Should Sports R Us accept the special Order? Why? 12 Variable cost per ball 13 Direct Materials Direct Labor 15 VOH 16 $A E The following information pertains to Utility Products Inc.: Brooms Mops Total Sales S 600,000 $ 400,000 1,000,000 Variable Costs 420,000 180,000 600,000 Contribution Margin 180,000 220,000 $ 400,000 Less Direct fixed costs 50,000 150,000 200,000 Segment margin S 130,000 $ 70,000 $ 200,000 allocated Common Costs 40,000 80,000 120,000 0 Net Income 90,000 $ (10,000) $ 80,000 2 Since the Mops division is operating at a loss, should it be dropped? Why? 3 416 17 If the Mops division is dropped what will happen to the profits of Utility Products? Support your answer with computations. 18 19 20 21 Income with Mops Income without Mops Difference 22 Brooms Mops Total Brooms Total 23 Sales $ 24 Variable Costs 0 S 25 Contribution Margin S S S S S S 26 Less Direct fixed costs 0 27 Segment margin $ S S S S 28 Allocated Common Costs 29 Net Income $ S S S 30A B C D E F G H I J K Pork Processors Co. is considering offering three new pork products. The relevant cost data for the products follows: Sales Revenue if Sales Revenue if Further Processing Product sold at split-off Processed Further costs Chops 100,000 S 200,000 $ 80,000 Head $ 20,000 $ 40,000 $ 25,000 Belly 50,000 S 60,000 S 5,000 The chops can be brined and smoked and sold as breakfast steaks. The belly can be smoked and sold as bacon and the head can be boiled and sold as head cheese. Which of these products should be processed further and which should be sold at the split-off point. Support your decisions with calculations. Chops Head Belly Revenue if processed further Revenue if sold at split off Incremental revenue $ $ Less incremental costs operating income (loss) from $ $ $ processing further 8A B C D E F G H J K 1 Zeke Co. manufactures two products that both require labor and machining. There is unlimited demand for these products. 2 Unit sales and cost data and processing requirements follow: Product A Product B 4 Selling Price 75.00 200.00 5 Variable costs 25.00 S 80.00 6 Machine hours required 0.4 1.2 7 Labor hours required 2 6 8 9 The company is limited to 160,000 machine hours and 120,000 labor hours. Fixed costs are $1,000,000 10 11 What is the most profitable mix of products to produce? Explain your answer 12 13 A B 14 Selling Price 15 Variable Cost 16 Contribution Margin 0 0 17 Machine hours required 18 CM Per machine hour #DIV/O! #DIV/O! 19 Labor hours required 20 CM per labor hour #DIV/O! #DIV/0!21 22 To maximize CM, Zeke should