Featured Exercises

1. Sedona Corporation has an annual plant capacity of 2,800,000 units of output. Its regular operations for the year are budgeted as follows:

Revenues, 2,000,000 units at $38 each $76,000,000

Manufacturing costs

Variable $25 per unit

Fixed $18,000,000

Marketing and administrative costs

Variable (sales commissions) $6 per unit

Fixed $2,000,000

Sedona has been contacted about supplying a one-time-only special order of 60,000 units at a selling price of $32, subject to half the usual sales commission per unit. Assuming this special order will have no effect on regular sales, should Sedona accept the order? Show your computations.

2. Cardinal Company needs 20,000 units of Part K28 to use in its production cycle. The following information is available: Cost to Cardinal to make a unit of Part K28:

Direct materials $ 4

Direct manufacturing labor 16

Variable overhead allocated 8

Fixed overhead allocated 10

Total cost $38

Cost to buy the part from Oriole Company $36

If Cardinal buys the part from Oriole instead of making it, the released facilities will be idle. Sixty percent of the fixed overhead allocated will continue if the part is bought from Oriole. Should Cardinal make or buy Part K28? Show your computations.