Problem 4-65 (Static) Decision Whether to Add or Drop (LO 4-4) O'Neil Enterprises produces a line of canned soups for sale at supermarkets across the country: Demand has been "soft" recently and the company is operating at 70 percent of capacity. The company is considering dropping one of the soups, beef barley, in hopes of improving profitability. If beef barley is dropped, the revenue associated with it will be lost and the related variable costs saved. The CFO estimates that the fixed costs will also be reduced by 25 percent. The following product line statements are available. Beef Product Broth Barley Minestrone Sales $32, 600 $42, 800 $ 51, 200 Variable costs 22, 000 38 , 600 40 , 100 Contribution margin $10, 600 $ 4, 200 $ 11, 100 Fixed costs allocated to each product line 4, 700 6,000 7 , 100 Operating profit (loss) $ 5, 900 $ (1, 800) $ 4,000 Required: a-1. Complete the following differential cost schedule. a-2. From an operating profit perspective, should O'Neil drop the beef barley line? b. When the product manager for the minestrone soup hears that managers are considering dropping the beef barley line, she points out that many O'Neil customers buy more than one soup flavor and if beef barley is not available from O'Neil, some of them might stop buying the other soups as well. She estimates that 5 percent of the current sales of both broth and minestrone will be lost if beef barley is dropped.Problem 4-55 (Static) Pricing Decisions (LO 4-2) The executive education (EE) unit at the Business School of Central State University offers both open-enrollment (anyone can sign up) and custom (designed for a specific client) executive education programs. CSU has just received an inquiry from a prospective client about its prices for leadership seminars. The prospective client wants bids for three alternative activity levels: (1) one seminar with 20 participants, (2) four seminars with 20 participants each (80 participants total), or (3) eight seminars with 140 participants in total. EE's cost analyst has provided the following differential cost estimates. Setup costs for the entire job $ 900 Materials costs per participant (brochures, handouts, coffee, lunch, etc. ) 150 Differential direct labor costs: One seminar $ 1, 800 Four seminars 7, 806 Eight seminars 13, 200 In addition to the preceding differential costs, EE allocates fixed costs to jobs on a direct-labor-cost basis, at a rate of 75 percent of direct labor costs (excluding setup costs). For example, if direct labor costs are $100, EE would also charge the job $75 for fixed costs. EE charges clients for its costs plus 20 percent. For the purpose of charging customers, costs equal the setup costs plus materials costs plus differential labor costs plus allocated fixed costs. EE has enough excess capacity to handle this job with ease. Required: a. Assume EE's bid equals the total cost, including fixed costs allocated to the job, plus the 20 percent markup on cost. What should EE bid for each of the three levels of activity? said the late thatb. Compute the differential cost (including setup costs) and the contribution to profit for each of the three levels of activity. Note that fixed costs are not differential costs. c. Assume the prospective client gives three options. It is willing to accept either of EE's bids for the one-seminar or four-seminar activity levels, but the prospective client will pay only 90 percent of the bid price for the eight-seminar package. EE's director responds, "We can't make money in this business by shaving our bids! Let's take the four-seminar option because we make the most profit on it." c-1. What would be the contribution to profit for each of the three options? c-2. Do you agree with the EE's director? Complete this question by entering your answers in the tabs below. Req A Req B Req C1 Req C2 Assume EE's bid equals the total cost, including fixed costs allocated to the job, plus the 20 percent markup on cost. What should EE bid for each of the three levels of activity? Eight One Seminar Four Seminars Seminars Number of participants Total costs Markup BidProblem 4-53 (Static) Special Order (LO 4-1, 2) Unter Components manufactures low-cost navigation systems for installation in ride-sharing cars. It sells these systems to various car services that can customize them for their locale and business model. It manufactures two systems, the Star100 and the Star150, which differ in terms of capabilities. The following information is available. Costs per unit Star100 Star150 Direct materials $ 130 $ 150 Direct labor 60 80 Variable overhead 30 40 Fixed overhead 180 240 Total cost per unit $ 400 $ 510 Price $ 580 $ 780 Units sold 4, 000 2, 000 The average wage rate is $40 per hour. Variable overhead varies with the quantity of direct labor-hours. The plant has a capacity of 20,000 direct labor-hours, but current production uses only 10,000 direct labor-hours. Required: a. A nationwide car-sharing service has offered to buy 2,500 Star100 systems and 2,500 Star150 systems if the price is lowered to $400 and $500, respectively, per unit. a-1. If Unter accepts the offer, how many direct labor-hours will be required to produce the additional systems? a-2. Complete the, following table to determine the differential profit increase (or decrease) if Unter accepts this proposal. Prices on regular sales will remain the same.b-1. Suppose that the car-sharing has offered instead to buy 3,500 each of the two models at $400 and $500, respectively. This customer will purchase the 3,500 units of each model only in an all-or-nothing deal. That is, Unter must provide all 3,500 units of each model or none. Unter's management has decided to fill the entire special order for both models. In view of its capacity constraints, Unter will reduce sales to regular customers as needed to fill the special order. Complete the table below to determine the total contribution margin with the special order added. b-2. How much will the profits change if the order is accepted? Assume that the company cannot increase its production capacity to meet the extra demand. c-1. Assume that, in the situation presented in requirement b-1, the plant can work overtime. Direct labor costs for the overtime production increased to $60 per hour. Variable overhead costs for overtime production are $10 per hour more than for normal production. Complete the table below to determine the total contribution margin. c-2. How much will the profits change in this situation? Complete this question by entering your answers in the tabs below. Req Al Req A2 Req B1 Req B2 Req C1 Req C2 A nationwide car-sharing service has offered to buy 2,500 Star100 systems and 2,500 Star150 systems if the price is lowered to $400 and $500, respectively, per unit. A2. Complete the following table to determine the differential profit increase (or decrease) if Unter accepts this proposal. Prices on regular sales will remain the same. Show less Amework (1 D-1. Complete the Tollowing amerential cost schedule. b-2. Based on the estimate from the project manager, should O'Neil drop the beef barley line? Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B1 Req B2 Complete the following differential cost schedule. Status Quo Alternative: Drop Beef Barley Difference Revenue Less: Variable costs Contribution margin Less: Fixed costs Operating profit (loss) Reg A2Polar Industries makes refrigerators. Polar's management wants to market refrigerators to students in dorm rooms and small apartments by making a compact refrigerator. The competition, led by Walmart, prices small refrigerators at $46 each. The production manager at Polar Industries estimates that the small refrigerator could be produced for the following manufacturing costs. Direct materials $ 24 Direct labor 10 Manufacturing overhead 3 Total $ 42 Polar's management wants to make an operating margin of 10 percent (operating margin equals revenues minus manufacturing costs) Required: a. Suppose Polar uses cost-plus pricing, setting the price to manufacturing costs plus 10 percent of manufacturing costs. What price should it charge for the refrigerator? b. Suppose Polar uses target costing. What is the highest acceptable manufacturing cost for which Polar would be willing to produce the small refrigerator