Han Products manufactures 27,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is:

Direct materials	$ 3.50
Direct labor	10.00
Variable manufacturing overhead	2.50
Fixed manufacturing overhead	12.00
Total cost per part	$ 28.00

An outside supplier has offered to sell 27,000 units of part S-6 each year to Han Products for $22 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $77,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier.

Required:

What is the financial advantage (disadvantage) of accepting the outside suppliers offer?

Benoit Company produces three productsA, B, and C. Data concerning the three products follow (per unit):

	Product
	A	B	C
Selling price	$ 90.00	$ 57.00	$ 80.00
Variable expenses:
Direct materials	28.80	18.00	8.00
Other variable expenses	28.80	21.90	48.00
Total variable expenses	57.60	39.90	56.00
Contribution margin	$ 32.40	$ 17.10	$ 24.00
Contribution margin ratio	36%	30%	30%

The company estimates that it can sell 900 units of each product per month. The same raw material is used in each product. The material costs $4 per pound with a maximum of 5,400 pounds available each month.

Required:

1. Calculate the contribution margin per pound of the constraining resource for each product.

2. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third?

3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,400 pounds of materials?

Wexpro, Incorporated, produces several products from processing 1 ton of clypton, a rare mineral. Material and processing costs total $63,000 per ton, one-fourth of which is allocated to product X15. Six thousand eight hundred units of product X15 are produced from each ton of clypton. The units can either be sold at the split-off point for $16 each, or processed further at a total cost of $6,100 and then sold for $21 each.

Required:

1. What is the financial advantage (disadvantage) of further processing product X15?

2. Should product X15 be processed further or sold at the split-off point?

Bed & Bath, a retailing company, has two departmentsHardware and Linens. The companys most recent monthly contribution format income statement follows:

	Total	Department
		Hardware	Linens
Sales	$ 4,260,000	$ 3,150,000	$ 1,110,000
Variable expenses	1,245,000	842,000	403,000
Contribution margin	3,015,000	2,308,000	707,000
Fixed expenses	2,280,000	1,400,000	880,000
Net operating income (loss)	$ 735,000	$ 908,000	$ (173,000)

A study indicates that $380,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 18% decrease in the sales of the Hardware Department.

Required:

What is the financial advantage (disadvantage) of discontinuing the Linens Department?

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year. Costs associated with this level of production and sales are given below:

	Unit	Total
Direct materials	$ 20	$ 600,000
Direct labor	6	180,000
Variable manufacturing overhead	3	90,000
Fixed manufacturing overhead	9	270,000
Variable selling expense	4	120,000
Fixed selling expense	6	180,000
Total cost	$ 48	$ 1,440,000

The Rets normally sell for $53 each. Fixed manufacturing overhead is $270,000 per year within the range of 21,000 through 30,000 Rets per year.

Required:

1. Assume that due to a recession, Polaski Company expects to sell only 21,000 Rets through regular channels next year. A large retail chain has offered to purchase 9,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chains name on the 9,000 units. This machine would cost $18,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.)

2. Refer to the original data. Assume again that Polaski Company expects to sell only 21,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 9,000 Rets. The Army would reimburse Polaski for all of the variable and fixed production costs assigned to the units by the companys absorption costing system, plus it would pay an additional fee of $1.20 per unit. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financial advantage (disadvantage) of accepting the U.S. Army's special order?

3. Assume the same situation as described in (2) above, except that the company expects to sell 30,000 Rets through regular channels next year. Thus, accepting the U.S. Armys order would require giving up regular sales of 9,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?