Name: ACCT 285 - Practice Set #4 (Chapter 6) Chapter 6 Planters Co. Planters Co. is considering two different projects. Costs associated with the two alternatives. Project Cashew S. Pro'ect Peanut. are listed below: Project Cashew Project Peanut Materials cost $72,000 $53.000 Labor cost $92,000 $91000 Power cost $41,000 $41.000 Which costs are relevant and which are not relevant in the choice between these two alternatives? A. All of the costs are relevant B. Only the materials cost is relevant C. Both the materials and labor costs are relevant D. Both the labor and power costs are relevant Banners Etc. Banners Etc. has received a special order for 4,000 units of its product at a sales price of $133. Banners usually sells 345,000 units each year for $158 per unit. The manufacturing cost details are as follows: BELLLIJJI Direct Materials $40 Direct Labor $58 Variable Manufacturing Overhead$22 Fixed Manufacturing Overhead 518 Unit Cost $138 Assume that Banner Etc. has sufcient capacity to ll the order without harming normal production and sales. a. If Banners Etc. accepts the order, what effect will the order have on the company's net income? b. What is the minimum price for which Banners Etc. should be willing to accept a special order? Office Supplies Inc. The management of Office Supplies Inc. is considering dropping its least popular product, land line phones. Data from the company's acc0unting system related to the sales of land line phones appears below: $710,000 | Variable expenses $357,000 Fixed manufacturin ex enses $289,000 Fixed Selling and administrative expenses $159,000 Sales In the company's accounting system. all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $50,000 of the fixed manufacturing expenses and $83.000 of the fixed selling and administrative expenses are unavoidable if the sales of land line phones is discontinued. What would be the effect on the company's overall net operating income if land line phones are dropped? Sweets Co. Sweets Co. makes wheels for use in the production of a children's ice cream truck toy. The cost for Sweets to produce 220.000 wheels annually are as follows: Direct materials $0.20 Direct labor 0.40 Variable manufacturin overhead 0.10 Fixed manufacturing overhead 0.30 Total | $1.00 An outside supplier has offered to sell Sweets similar wheels for $0.90 per wheel. If the wheels are purchased from the outside supplier, $27,000 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $70,000 per year. If Sweets chooses to buy the wheel from the outside supplier. how would that affect the company's annual net operating income? Oats Co. Oats Co. can sell their oats at the split-off point in a bulk bag for $30. The oats can also be processed further into individual oatmeal packets, oatmeal square bars, and granola cups. A batch of each one of these items uses a bulk bag of oats. Costs related to each batch of these products is as follows: Oatmeal Oatmeal Square Granola Packets Bars Cups Sales value at split-off point $30 $30 $30 Allocated joint costs $12 $12 $12 Sales value after further processing $150 $190 $300 Cost of further processing $50 $80 $280 What is the financial advantage (disadvantage) of further processing each of the three products beyond the split-off point? AND Based on your analysis. which product or products should be sold at the split-off point and which product or products should be processed further? JP Corp. JP Corp. makes three main products for the following selling price, cost, and labor requirement per unit. Demand of each product is also included below: Product A | Product 3 | Product C Sellin rice er unit $600 $300 $500 Variable cost per unit $400 $120 $360 Direct labor hours per unit I 5 3 2 Demand | 1,000 2.000 500 a. In what order should JP prioritize production of the products? b. If only 9.000 direct labor hours are available due to a labor shortage, how many units of each product should be produced and Sold in order to maximize profit? ACCT 285 - Practice Set #4 (Chapter 6) Chapter 6 Planters Co. B Banners Etc. - Special Order a. Net income will INCREASE by $52,000 b. Minimum sales price = $120 per unit Office Supplies - Add/Drop Net income will DECREASE by $38,000 Sweets Co. - Make/Buy Net income will INCREASE by $53,000 Oats Co. - Sell or Process Further Oatmeal Packets - $70 advantage - process further Oatmeal Squares - $80 advantage - process further Granola Cups - $10 disadvantage - sell "as is" JP Corp - Utilization of a Constraint a. A - #3 B - #2 C - #1 b. Optimal production plan = 500 units of Product C 2,000 units of Product B 400 units of Product A