Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $59 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 39% of direct labor cost. The unit costs to produce comparable carrying cases are expected to be as follows: Direct materials $27 Direct labor 21 Factory overhead (39% of direct labor) 8.19 Total cost per unit $56.19 If Fremont Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 12% of the direct labor costs. a. Prepare a differential analysis dated September 30 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the carrying case. If required, round your answers to two decimal places. If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Make Carrying Case (Alt. 1) or Buy Carrying Case (Alt. 2) September 30 Make Carrying Case (Alternative Buy Carrying Case (Alternative Differential Effect on Income (Alternative 2) Sales price Unit costs: Purchase price Direct materials Direct labor Variable factory overhead Fixed factory overhead Income (Loss) b. Assuming there were no better alternative uses for the spare capacity, it would to manufacture the carrying cases. Fixed factory overhead is to this decision.? Differential Analysis for Machine Replacement Kim Kwon Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $85,500, the accumulated depreciation is $34,200, its remaining useful life is five years, and its residual value is negligible. On May 4 of the current year, a proposal was made to replace the present manufacturing procedure with a fully automatic machine that has a purchase price of $177,800. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on present and proposed operations: Present Proposed Operations Operations Sales $271,000 $271,000 Direct materials $92,300 $92,300 Direct labor 64,100 Power and maintenance 6,000 31,600 Taxes, insurance, etc. 2,100 7,100 Selling and administrative expenses 64,100 64,100 Total expenses $228,600 $195,100 a. Prepare a differential analysis dated May 4, to determine whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Prepare the analysis over the useful life of the new machine. If an amount is zero, enter "0". Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) May 4 Continue with Old Machine Replace Old Machine Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Sales (5 years) Costs: Purchase price Direct materials (5 years) Direct labor (5 years) Power and maintenance (5 years) Taxes, insurance, etc. (5 years) Selling and admin. expenses (5 years) Income (Loss) b. Based only on the data presented, should the proposal be accepted? c. Differences in capacity between the two alternatives is to consider before a final decision is made.Decision on Accepting Additional Business Homestead Jeans Co. has an annual plant capacity of 64,700 units, and current production is 43,500 units. Monthly fixed costs are $41,800, and variable costs are $25 per unit. The present selling price is $36 per unit. On November 12 of the current year, the company received an offer from Dawkins Company for 13,200 units of the product at $28 each. Dawkins Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Homestead Jeans Co. a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Dawkins order. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Reject Order (Alternative Accept Order (Alternative Differential Effect on Income (Alternative 2) 2) Revenues Costs: Variable manufacturing costs Income (Loss) b. Having unused capacity available is to this decision. The differential revenue is than the differential cost. Thus, accepting this additional business will result in a net c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places. $Machine Replacement Decision A company is considering replacing an old piece of machinery, which cost $598,100 and has $350,700 of accumulated depreciation to date, with a new machine that has a purchase price of $485,600. The old machine could be sold for $62,100. The annual variable production costs associated with the old machine are estimated to be $157,500 per year for eight years. The annual variable production costs for the new machine are estimated to be $101,700 per year for eight years. a.1 Prepare a differential analysis dated September 13, to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) September 13 Continue with Old Machine Replace Old Machine Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues: Proceeds from sale of old machine Costs: Purchase price Variable productions costs (8 years) Income (Loss) a.2 Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. b. What is the sunk cost in this situation? The sunk cost is the $? Differential Analysis for a Lease or Buy Decision Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,300. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $390 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,420 per year for four years, with no additional costs. Prepare a differential analysis dated December 3, to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December Lease Equipment (Alternative Buy Equipment (Alternative Differential Effect on Income (Alternative 2) Revenues Costs: Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Income (loss)Differential Analysis for a Discontinued Product The condensed product-line income statement for Dish N' Dat Company for the month of March is as follows: Dish N' Dat Company Product-Line Income Statement For the Month Ended March 31 Bowls Plates Cups Sales $64,300 $89,700 $26,200 Cost of goods sold 25,400 33,800 15,000 Gross profit $38,900 $55,900 $11,200 Selling and administrative expenses 28,600 35,800 15,400 Income from operations $10,300 $20,100 $(4,200) Fixed costs are 12% of the cost of goods sold and 35% of the selling and administrative expenses. Dish N' Dat assumes that fixed costs would not be materially affected if the Cups line were discontinued. a. Prepare a differential analysis dated March 31 to determine if Cups should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate a loss. Differential Analysis Continue Cups (Alt. 1) or Discontinue Cups (Alt. 2) March 31 Continue Cups Discontinue Cups Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable cost of goods sold Variable selling and admin. expenses Fixed costs Income (Loss)? Differential Analysis for a Lease or Sell Decision Granite Construction Company is considering selling excess machinery with a book value of $277,400 (original cost of $399,200 less accumulated depreciation of $121,800) for $277,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $283,000 for five years, after which it is expected to have no residual value. During the period of the lease, Granite Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,600. a. Prepare a differential analysis, dated November 7 to determine whether Granite should lease (Alternative 1) or sell (Alternative 2) the machinery. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) November 7 Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs Income (Loss) Feedback