Problem 4.1: Textel is thinking about having one of its products manufactured by a subcontractor.

Currently, the cost of manufacturing 1,000 units follows:

Direct material $45,000

Direct labor 30,000

Factory overhead (30% is variable) 98,000

If Textel can buy 1,000 units from a subcontractor for $100,000, what should Textel do (make or buy):

Problem 4.2: Thompson Company had the following results of operations for the past year:

Sales (16,000 units at $10) $ 160,000

Direct materials and direct labor $96,000

Overhead (20% variable) 16,000

Selling and administrative expenses (all fixed) 32,000 (144,000)

Operating income $ 16,000

A foreign company offers to buy 4,000 units at $7.50 per unit. In addition to variable manufacturing costs, selling these units would increase fixed overhead by $600 and selling and administrative costs by $300.

Should Thompson accept or reject this special order? (Show your computation)

Problem 4.3: Barnes manufactures a specialty food product that can currently be sold for $22 per unit and has 20,000 units on hand. Alternatively, it can be further processed at a cost of $12,000 and converted into 12,000 units of Exceptional and 6,000 units of Premium. The selling price of Exceptional and Premium are $30 and $20, respectively.

Should Barnes sells as specialty food product or process it further? (Show your computation)

Problem 4.4: A company inadvertently produced 6,000 defective portable CD players. The CD players cost $20 each to be manufactured. A salvage company will purchase the defective units as they are for $16 each. The production manager reports that the defects can be corrected for $9 per unit, enabling the company to sell them at the regular price of $30.00. The repair operations would not affect other production operations.

Should the company sells them as defective CD players or repair them? (Show your computation)