Question #1

Boston Beer Company prints the labels for all of its beer bottles. Boston Beer's costs to produce 1,000,000 labels annually are:

Direct materials...........................

$30,000

Direct labor..................................

$50,000

Variable overhead.......................

$20,000

Fixed overhead............................

$70,000

An outside supplier has offered to print Boston Beer's labels for 13 cents per label. If the labels are purchased from the outside supplier, $15,000 of annual fixed overhead could be avoided and the space now being used for printing could be rented to another company for $45,000 per year.

What is the change in net annual operating income if Boston Beer chooses to buy the labels from the outside supplier and rents the available space?Should Boston Beer proceed with this offer? (Ignore the impact of selling any of Boston's printing equipment.)

Question #2

Two products, alcohol and sodium, emerge from a joint process.The alcohol has been allocated $20,800 of the total joint costs of $34,000.A total of 2,000 gals. of alcohol are produced from the joint process.The alcohol can be sold at the split-off point for $20 per gal., or it can be processed further into mouthwash for an additional total cost of $14,000 and then sold for $22 per gal.If the alcohol is processed further and sold as mouthwash, what would be the effect on the overall profit of the company compared with sale in its unprocessed form as alcohol?Do you recommend selling the alcohol or processing it into and selling it as mouthwash?(Show your calculations)