Harry's Hot Tubs manufactures hot tubs and currently makes the control panel for the hot tub internally. Harry's factory supervisor, who is responsible for the manufacture of the hot tubs and the control panels, is trying to decide whether to continue making the control panels internally or buy them from a supplier. The company reports the following costs of making 9,000 control panels each year. Per Unit 9,000 Units Direct materials $ 4 $36.000 Direct labor $3 $ 27,000 Variable overhead $ 2 $ 18,000 Factory supervisor salary $6 $ 54,000 Equipment depreciation $ 2 $18,000 Allocated fixed overhead, Other 5.5 $ 45.000 Total cost $ 22 $198.000 An outside supplier has offered to sell 9.000 control panels a year to Harry's Hot Tubs for a price of $8 per control panel. What is the financial advantage (disadvantage) of buying the control panels from the outside supplier? O Financial advantage of $81.000 Financial advantage of 563,000 Financial advantage of $126.000 O Financial advantage of $9.000 Wheely, a retailing company, has two departments-Bicycles and Scooters. Wheely is considering dropping the Bicycle Department. The company's most recent monthly contribution format income statement follows: Department Total Bicycles Scooters Sales $4,250,000 $2,500,000 $ 1.750,000 Variable Expenses 5 1.600.000 $.1.200.000 $ 400.000 Contribution Margin $ 2.650.000 $ 1.300.000 $ 1.350.000 Fixed Expenses $ 2.000.000 $ 1.400.000 5.600.000 Net Operating Income (Loss) $ 650,000 $(100,000) $750,000 $1,000,000 of the fixed expenses being charged to Bicycles are sunk costs or allocated costs that will continue even if the Bicycles department is dropped. Also, the elimination of the bicycles department will result in a 10% decrease in the sales and variable costs of the Scooter department What is the financial advantage (disadvantage) of dropping the Bicycles department completely? O Financial advantage of $900.000 Financial disadvantage of ($1.035.000) Financial advantage of $1,035,000 Financial disadvantage of $900.000) Chiff's Doors is considering upgrading its products from hollow doors to solid doors. This will allow them to sell their doors at a higher price, but their materials costs will also increase. Data for the company's annual sales and costs of doors with and without the upgrade are below. With the Upgrade Without the Upgrade 3,000 3,000 Units produced and sold Selling price per unit $ 300 $ 400 Direct Materials cost per unit $ 100 $250 $ 25 $ 25 Direct Labor cost per unit Variable overhead cost per unit 55 $ 5 $ 40,000 Fixed Expenses $40,000 What is the financial advantage (disadvantage) of upgrading to solid doors? Financial disadvantage of ($110.000) Financial advantage of $150.000 Financial disadvantage of ($150,000) Financial advantage of $110,000 Alfonse Cutlery manufactures three models of electric knives. The production department has met all production requirements for the current month and has the opportunity to produce extra units with its excess capacity. However, Alfonse can only produce one type of model with the excess capacity. Some important company information follows: Home Model Deluxe Model Pro Model Contribution margin per unit $24 $38 $44 Home Direct Labor Used per Unit 1 hour per unit 1.5 hours per unit 2 hours per unit Deluxe Pro Direct labor is the binding constraint this month. Which product should be produced for the rest of the month? Home Model Pro Model Deluxe Model
