CHAPTER 7 SET 1 Question 1 - Sell / Process Further The following information relates to three separate products manufactured by the Wooden Classics Inc. They share a common joint cost of $250,000. The products can each be sold at the split off point or they can be further processed and sold at a higher price. Details are provided below: Sales Value Costs to Sales Value after Products at Split Off Process Further Further Processing $150,000 $275,000 $390,000 $95,000 $ 150,000 $275,000 $175,000 $300,000 $475,000 Required: a) Using incremental analysis determine which products should be sold at split-off point and which should be processed further. b) Briefly describe the treatment of Joint Costs when making a sell-or-process-further decision. Question 2 - Eliminate unprofitable segment Bowlers Inc is trying to decide whether or not to continue making bowling shoes. The following information is available for the segments: Bowling Bowling Bowling Shoes Bowls Bags Sales $120,000 $420,000 $360,000 Variable Costs 64,000 220,000 140.000 Contribution Margin 56,000 200,000 220,000 Direct Fixed Costs 40.000 70,000 90,000 Allocated Fixed Costs 20,000 70,000 60.000 Net Income (54.000) 560 000 $70.000 Assume that all direct fixed costs could be avoided if a segment is dropped, however the allocated fixed costs are unavoidable and will be apportioned equally among the remaining segments. Required: Calculate the impact on Net Income of eliminating the Bowling Shoes segment bj Based solely on your calculation in part (a) above, should the Bowling Shoes Segment be eliminated?Question 3 - Repair/Retain Hudson Company manufactures a variety of products for the building industry. Hudson currently uses a machine purchased one year ago with a remaining useful life of three years (original cost of $100,000, book value of $75,000). Variable costs associated with use of this machine are $180,000 per year. If the old machine is replaced it will be sold for $60,000. An advanced technology version of the machine is now available and can be purchased for $90,000. The new machine is more efficient, has a 3-year life, and will reduce variable costs by 20%. These details are summarized below: Old Machine New Machine Original cost $100.000 $90,000 Book value $75,000 Not applicable Variable costs per year $180.000 20% less Salvage value $60,000 Not applicable Useful Life 3 yrs 3 yrs Required: (a) Calculate the gain or loss on disposal on the old machine. (b) Prepare an analysis to show whether Hudson Company should retain or replace the old machine. Question 4 - Special Order Lunker Lures Company produces the popular Rippin' Rogue. The cost to produce a Rippin' Rogue is $1.10, consisting of $0.20 direct materials, $0.40 direct labor, and $0.50 factory overhead. The factory overhead is 30% variable and 70% fixed cost allocation. Rippin' Rogues are sold to retailers across the country through an established network of manufacturers' representatives who are paid $0.10 for each lure sold in their respective territories. Lunker Lures has been approached by Walleye Pro Fishing World to produce a special run of 1,000,000 units. These lures would be sold under the Walleye Wiggler brand name and would not otherwise compete with sales of Rippin' Rogues. Walleye Pro Fishing World's offer is priced at $1.00 per unit. Lunker Lures is obligated to pay its network of manufacturers' representatives half of the normal rep. fee for such private lahal transactions Required: a) Should Lunker Lures accept the special order? b) What nonfinancial factors should management consider in making its decision