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Keenan Music - - Differential Analysis Case Before the recent proposal of the Specialty Guitar Project, Keenan Music had two product lines that include Acoustic

Keenan Music -- Differential Analysis Case
Before the recent proposal of the Specialty Guitar Project, Keenan Music had two product lines that include Acoustic Guitar and Electric Guitar. The company
sold 25,000 acoustic and 15,000 electric guitars. The segmented income statement for the company as a whole appears below.
While Keenan Music is making a profit of over $1 million, it appears that Electric is not making a profit as a product line. Keenan Music has been trying
different strategies to improve Electric Guitar's profit, but the line continues to make a loss. The CFO of Keenan Music has asked the accountant to consider
dropping the electric product line. If the product line were dropped, the traceable fixed expenses for Electric would be eliminated, but none of the common
fixed expenses would be affected. The equipment used in the production was purchased long time ago and will have no other use or can be sold.While the Company is pondering about the fate of the Electric Guitar, another local company approached Keenan Music and offered to make the
2 Electric Guitar for them with a selling price of $285. Based on the current cost information above, the accountant figured out the full cost of making
and selling one Electric Guitar to be $342.58, as presented below. It appears that the purchasing the electric guitars will help improve the
same way; hence, the variable selling and administrative expenses and the advertising expense will not be affected. However, they will no longer
need to design the electric guitars so the product design expense can be avoided. Also, as stated above, the equipment used in the production was
purchased long time ago and will have no other use of can be sold. Finally, the common fixed expenses will not be affected if Keenan purchases the
electric guitars.
The number of Electric Guitars needed is
The selling price offered by the local company is
What are the Relevant Cost Per Unit, Total Relevant Cost for 15,000 guitars, and Total Purchase Cost for 15,000 guitars, if Keenan
Music stops making the Electric Guitar and purchases from the local company?
Direct Materials
Direct Labor
Variable S & A Expenses
Variable MOH
Depreciation of Equipment
Advertising Expense
Product Design Expense
Common Fixed Expenses
Total
Total Relevant Cost for 15,000 guitars
Total Purchase Cost for 15,000 guitars
Cost Difference
Purchasing the Electric Guitars from the local company wi
Should Keenan Music purchase the Electric Guitars?
**INCLUDE FORMULA TO FIND AND DO NOT USE CHATGBT.
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