Problem 1 Special Order

Baldwin Golf Supply produces a golf bag that sells for $200. Although the company's production capacity is 5,000 bags per year, only 4,000 bags are currently being produced and sold. The production costs for 4,000 bags are as follows:

Unit-level material cost $400,000

Unit-level labor cost $200,000

Unit-level overhead $50,000

Batch-level set-up cost ($2,500 per batch of 500 units) $20,000

Product level cost per year $15,000

Allocated Faciltity level cost $30,000

Golf Mart Stores has offered to purchase 1,000 golf bags as a one-time special purchase at a price of $175 per bag. Required: 1) Prepare a quantitative analysis that indicates whether the special order should be accepted.

2) What qualitative factors should be considered in this special order decision?

Problem 2 Outsourcing

MZN Company currently produces a component that it uses in making some of its products. The company has calculated the following costs for making the part:

Unit level cost

Materials $20

Labor 28

Overhead 2

Allocated facility level cost 10

Total Cost $60

MZN is considering outsourcing the component. A supplier has offered to sell the component to MZN for $54 each. MZN needs 10,000 units each year. If MZN does outsource the component, it can use the facilities to make another product that would yield contribution margin of $60,000 per year. Required: Should MZN outsource the component? Support your answer with appropriate computations.

Problem 3 Segment Elimination

Kogan Company has two divisions whose most recent financial statements are shown below:

Commercial Residential

Division Division

10,000 2,000

Unit Sales

Sales $800,000 $200,000

Less: cost of goods sold:

Unit level production cost 350,000 120,000

Depreciation production equipment 150,000 50,000

Gross margin $300,000 $30,000

Less: operating expenses:

Unit-level selling and administrative 80,000 20,000

Corporated- level facility cost (fixed) 25,000 15,000

Net income (loss) $195,000 ($5,000)

Required: 1) Compute the impact on profit if the Residential Division is eliminated. 2) Do you recommend that Kogan eliminate the Residential Division?

Problem 4 Asset replacement

The Graham Company is trying to decide whether to replace a packing machine that it uses to pack salsa into individual serving size packages. The following information is provided:

Current Machine:

Original cost $13,000

Accumulated depreciation 8,000

Annual operating cost 4,000

Current market value 2,000

Salvage value five years from now 500

New Machine

Cost $8,000

Annual operating costs 2,500

Salvage value at the end of five years 500

Required: Compute the total advantage or disadvantage of buying the new machine.