Chapter 12 #1 The management of Bernese Company is considering whether one of the department's in its retail stores should be eliminated. The contribution margin in the department is $150,000 per year. Fixed expenses allocated to the department are $130,000 per year. It is estimated that $120,000 of these fixed expenses will be eliminated if the department is discontinued. Part (a) Which costs, if any, are irrelevant to this decision? Part (b) If the department is eliminated, what will be the impact on the company's overall net anarating income? 2 II composite Company produces 2.000 parts per year, which are used in the ass Composite Company produces 2,000 parts per of its products. The unit product cost of these parts is: Variable manufacturing cost Fixed manufacturing cost Unit product cost $64 36 $100 The part can be purchased from an outside supplier at $80 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. Part(a) What costs, if any, are relevant to this decision? Which costs are irrelevant? Part (b) What would the annual impact on the company's net operating income be as a result of buying the part from the outside supplier? Part (c) if the company purchased the parts from the outside and was able to free up factory space to pursue a new project that would bring in an extra $20,000 in income, what would happen to the overall profits of the company? #3 Ginger Company sells its product for S42 per unit. The company's unit product cost based on the full capacity of 400,000 units is as follows: S8 Direct materials Direct labor Manufacturing overhead Unit product cost 530 A special order offering to buy 40,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be S6 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. If the foreign distributor is willing to pay $32 per unit, what would the impact on profits be if the company takes the special order? Chairs $80 $30 Tables $400 $200 10 Selling price per unit Variable cost per unit Board feet per unit Monthly demand 600 100 The company's supplier of hardwood will only be able to supply 2,000 board feet this month How many chairs and tables should the company produce to best utilize the 2,000 board feet of wood? (in other words, which combination would maximize profits?) #5 The Pixalator Corporation has 8,000 obsolete units of a product that are carried in inventory at a manufacturing cost of $160,000. If the units are remachined for $40,000, they could be sold for $72,000. Alternatively, the units could be sold for scrap for $28,000. Should the products be sold as is or processed further (show calculations)
