Clicker Question Preparation Guide: Ch. 7 Clicker questions will be asked in class based on your completion of this preparation guide. Example in class question: What is the answer to Question 1) b.? You will not have time to complete this guide in class! 1. Speedy Bikes currently sells its bicycles to retailers unassembled for $450 each. The cost to manufacture an unassembled bike is as follows Direct materials Direct labor Variable overhead Fixed overhead Manufacturing cost per unit $150 70 49 21 $290 Speedy currently has unused productive capacity and management has concluded that some of this capacity could be used to assemble the bikes and instead sell them to retailers for $495 each Assembling the bikes will increase direct materials by $5 per bike, and direct labor by $10 per bike Additional variable overhead cost will be $7 per bike, but there will be no additional fixed overhead as a result of assembling the bikes. Prepare an analysis to determine if the bikes should be sold as is (unassembled) or processed further and sold as assembled bikes. 2. Toby's Treats owns a machine that produces baskets for the gift packages the company sells. The company uses 900 baskets in production each month. The cost of making one basket is $4 for direct materials, $4 for variable manufacturing overhead, $3 for direct labor, and $6 for fixed manufacturing overhead. The unit cost is based on the monthly production of 900 baskets. The company determined that 45% of the fixed manufacturing overhead is avoidable. An outside supplier has offered to sell Toby's Treats the baskets for $12 each, and can supply all the units it needs. Prepare an incremental analysis to determine if the company should buy the baskets from the supplier. Calculate the impact on Net Income if 900 baskets were purchased from the outside supplier, and indicate whether or not Toby's Treats should make or buy the baskets. 3. Bradley Toys produces giant stuffed bears. Each bear consists of $13 of variable costs and $9 of fixed costs and sells for $45. A wholesaler offers to buy 8,500 bears from Bradley at $18 each, of which Bradley has the capacity to produce. If Bradley accepts this special order, Bradley will incur extra shipping costs of $2 per bear. Determine the incremental income or loss that Bradley Toys would realize by accepting the special order 4. Darby Dairy has four product lines: Sour Cream, Ice Cream, Yogurt, and Butter. Information related to the company's four product lines is illustrated below for the month of June: Yogurt 400 Sour Cream Ice Cream Butter Total Units sold 2,000 500 200 3,100 Revenue Variable costs Contribution Margin Fixed costs Net income (loss) $10,000 (6,000 4,000 7.000) $20,000 13,000 7,000 (2,000) (3,000) 5,000 10,000 $20,000 $60,000 (4,200 (4,800 28,000 $5,800$15,200 32,000 3,000) 7.000)(19.000) 2,800 8,200 $13,000 Darby is considering dropping the Sour Cream product line. Prepare an incremental analysis to show the effect of dropping this product line. Based on your analysis, should the Sour Cream product line be retained or eliminated, and what is the amount of incremental net income or net loss that would result from eliminating the product line? 5. Marlow Manufacturing is considering the replacement of a piece of equipment with a newer model. The following data has been collected $225,000 90,000 300,000 375,000 Purchase price Accumulated depreciation Annual operating costs 240,000 If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. Prepare an analysis to determine the incremental net income or (loss) that would result from replacing the old equipment