Exercise 20-2

Problem 20-3A Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The companys Dargan plant produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week, 895,500 ounces of chemical input are processed at a cost of $210,900 into 597,000 ounces of floor cleaner and 298,500 ounces of table cleaner. The floor cleaner has no market value until it is converted into a polish with the trade name FloorShine. The additional processing costs for this conversion amount to $248,100. FloorShine sells at $19 per 30-ounce bottle. The table cleaner can be sold for $20 per 25-ounce bottle. However, the table cleaner can be converted into two other products by adding 298,500 ounces of another compound (TCP) to the 298,500 ounces of table cleaner. This joint process will yield 298,500 ounces each of table stain remover (TSR) and table polish (TP). The additional processing costs for this process amount to $107,000. Both table products can be sold for $15 per 25-ounce bottle. The company decided not to process the table cleaner into TSR and TP based on the following analysis.

Process Further
Table Cleaner	Table Stain Remover (TSR)	Table Polish (TP)	Total
Production in ounces	298,500	298,500	298,500
Revenues	$238,800	$179,100	$179,100	$358,200
Costs:
CDG costs	70,300	*	52,725	52,725	105,450	**
TCP costs	0	53,500	53,500	107,000
Total costs	70,300	106,225	106,225	212,450
Weekly gross profit	$168,500	$72,875	$72,875	$145,750

*If table cleaner is not processed further, it is allocated 1/3 of the $210,900 of CDG cost, which is equal to 1/3 of the total physical output. **If table cleaner is processed further, total physical output is 1,194,000 ounces. TSR and TP combined account for 50% of the total physical output and are each allocated 25% of the CDG cost.

Determine if management made the correct decision to not process the table cleaner further by doing the following. (1) Calculate the companys total weekly gross profit assuming the table cleaner is not processed further.

Total weekly gross profit

$

(2) Calculate the companys total weekly gross profit assuming the table cleaner is processed further.

Total weekly gross profit

$

(3) Compare the resulting net incomes and comment on managements decision.

Management made the rightwrongdecision by choosing to not process table cleaner further.

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Using incremental analysis, determine if the table cleaner should be processed further.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Dont Process Table Cleaner Further	Process Table Cleaner Further	Net Income Increase (Decrease)
Incremental revenue	$	$	$
Incremental costs
Totals	$	$	$

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 23,100 golf discs is:

Materials	$12,474
Labor	36,036
Variable overhead	23,562
Fixed overhead	46,431
Total	$118,503

Gruden also incurs 5% sales commission ($0.35) on each disc sold.

McGee Corporation offers Gruden $4.75 per disc for 4,520 discs. McGee would sell the discs under its own brand name in foreign markets not yet served by Gruden. If Gruden accepts the offer, its fixed overhead will increase from $46,431 to $52,651 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

(a)

Prepare an incremental analysis for the special order.(Round answers to 0 decimal places, e.g. 1250. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	$	$	$
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Net income	$	$	$

(b)

Should Gruden accept the special order?

Gruden should rejectacceptthe special order .

Exercise 20-3 Moonbeam Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity:

Sales (350,800 units)	$4,374,000
Cost of goods sold	2,606,000
Gross profit	1,768,000
Operating expenses	841,000
Net income	$927,000

Cost of goods sold was 67% variable and 33% fixed; operating expenses were 77% variable and 23% fixed. In September, Moonbeam Company receives a special order for 21,100 toasters at $8.04 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,100 of shipping costs but no increase in fixed costs. (a) Prepare an incremental analysis for the special order.(Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725.Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	$	$	$
Cost of goods sold
Operating expenses
Net income	$	$	$

(b) Should Moonbeam Company accept the special order?

Moonbeam Company

should rejectshould accept

the special order.

Exercise 20-5 Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 61% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.96 and $4.89, respectively. Normal production is 32,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $12.89 per unit. If Pottery Ranch accepts the suppliers offer, all variable manufacturing costs will be eliminated, but the $46,500 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare an incremental analysis to decide if Pottery Ranch should buy the finials.(Round answers to 0 decimal places, e.g. 1250. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Make	Buy	Net Income Increase (Decrease)
Direct materials	$	$	$
Direct labor
Variable overhead costs
Fixed manufacturing costs
Purchase price
Total annual cost	$	$	$

(b) Should Pottery Ranch buy the finials?

YesNo, Pottery Ranch should buynot buythe finials.

(c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $42,044?

NoYes

, income would

decreaseincrease

by $

Problem 20-1A ThreePoint Sports Inc. manufactures basketballs for the Womens National Basketball Association (WNBA). For the first 6 months of 2017, the company reported the following operating results while operating at 80% of plant capacity and producing 119,900 units.

Amount
Sales	$4,676,100
Cost of goods sold	3,569,024
Selling and administrative expenses	443,437
Net income	$663,639

Fixed costs for the period were cost of goods sold $960,000, and selling and administrative expenses $248,000. In July, normally a slack manufacturing month, ThreePoint Sports receives a special order for 10,000 basketballs at $28 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.76 per unit because of shipping costs but would not increase fixed costs and expenses.

(a)Prepare an incremental analysis for the special order.(Round all per unit computations to 2 decimal places, e.g. 15.25.Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	$	$	$
Cost of goods sold
Selling and administrative expenses
Net income	$	$	$

(b)Should ThreePoint Sports Inc. accept the special order? YesNo

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What is the minimum selling price on the special order to produce net income of $5.08 per ball?(Round answer to 2 decimal places, e.g. 15.25.)

Minimum selling price

$

Problem 20-2A The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the companys finished product. The following information was collected from the accounting records and production data for the year ending December 31, 2017. 1. 8,000 units of CISCO were produced in the Machining Department. 2. Variable manufacturing costs applicable to the production of each CISCO unit were: direct materials $5.23, direct labor $4.71, indirect labor $0.48, utilities $0.39. 3. Fixed manufacturing costs applicable to the production of CISCO were:

Cost Item	Direct	Allocated
Depreciation	$2,100	$960
Property taxes	500	370
Insurance	910	650
$3,510	$1,980

All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments. 4. The lowest quotation for 8,000 CISCO units from a supplier is $86,830. 5. If CISCO units are purchased, freight and inspection costs would be $0.38 per unit, and receiving costs totaling $1,280 per year would be incurred by the Machining Department. (a)Prepare an incremental analysis for CISCO.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Make CISCO	Buy CISCO	Net Income Increase (Decrease)
Direct material	$	$	$
Direct labor
Indirect labor
Utilities
Depreciation
Property taxes
Insurance
Purchase price
Freight and inspection
Receiving costs
Total annual cost	$	$	$

(b)Based on your analysis, what decision should management make?

The company should make CISCObuy CISCO.

(c)Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO? NoYes