Franklin Corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, arn inexpensive calculator. The company's chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment's operating activities. The relevant range for the production and sale of the calculators is between 35,000 and 71,000 units per year. Revenue (39,000 units x $11) Unit-level variable costs $ 429,000 Materials cost (39,000 x $3) Labor cost ( 39 , 000 x $2 ) Manufacturing overhead (39,000 $0.10) Shipping and handling (39,000x $0.32) Sales commissions (39,000 $2) (117,000) (78,000) (3,900) (12,480) 78,000 139,620 Contribution margin Fixed expenses Advertising costs Salary of production supervisor Allocated companywide facility-level expenses (27,000) (67,000) 80,000 Net loss $ (34,380) Required a. A large discount store has approached the owner of Franklin about buying 7,000 calculators. It would replace The Math Machine's label with its own logo to avoid affecting Franklin's existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $5.50 per calculator. Calculate the contribution margin from the special order. Based on quantitative factors alone, should Franklin accept the special order? b-1. Franklin has an opportunity to buy the 39,000 calculators it currently makes from a reliable competing manufacturer for $6.20 each. The product meets Franklin's quality standards. Franklin could continue to use its own logo, advertising program, and sales force to distribute the products. Should Franklin buy the calculators or continue to make them? b-2. Calculate the total cost for Franklin to make and buy the 39,000 calculators b-3. Should Franklin buy the calculators or continue to make them, if the volume of sales were increased to 71,000 units? c. Because the calculator division is currently operating at a loss, should it be eliminated from the company's operations? Support your answer with appropriate computations. Specifically, by what amount would the segment's elimination increase or decrease profitability? Franklin Corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, arn inexpensive calculator. The company's chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment's operating activities. The relevant range for the production and sale of the calculators is between 35,000 and 71,000 units per year. Revenue (39,000 units x $11) Unit-level variable costs $ 429,000 Materials cost (39,000 x $3) Labor cost ( 39 , 000 x $2 ) Manufacturing overhead (39,000 $0.10) Shipping and handling (39,000x $0.32) Sales commissions (39,000 $2) (117,000) (78,000) (3,900) (12,480) 78,000 139,620 Contribution margin Fixed expenses Advertising costs Salary of production supervisor Allocated companywide facility-level expenses (27,000) (67,000) 80,000 Net loss $ (34,380) Required a. A large discount store has approached the owner of Franklin about buying 7,000 calculators. It would replace The Math Machine's label with its own logo to avoid affecting Franklin's existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $5.50 per calculator. Calculate the contribution margin from the special order. Based on quantitative factors alone, should Franklin accept the special order? b-1. Franklin has an opportunity to buy the 39,000 calculators it currently makes from a reliable competing manufacturer for $6.20 each. The product meets Franklin's quality standards. Franklin could continue to use its own logo, advertising program, and sales force to distribute the products. Should Franklin buy the calculators or continue to make them? b-2. Calculate the total cost for Franklin to make and buy the 39,000 calculators b-3. Should Franklin buy the calculators or continue to make them, if the volume of sales were increased to 71,000 units? c. Because the calculator division is currently operating at a loss, should it be eliminated from the company's operations? Support your answer with appropriate computations. Specifically, by what amount would the segment's elimination increase or decrease profitability
