Question 1

Charleston Affair currently makes the King Component, incurring variable costs of $18 per unit and fixed costs of $4 per unit. The company has the option to purchase the component for $20 per unit. Prepare a differential analysis to determine if the company should make (Alternative 1) or buy (Alternative 2) the King Component. Assume that the fixed costs will be incurred in each situation.

Question 2

Charleston Affair is considering replacing an outdated piece of machinery. Use the information below for the old piece of machinery and new machinery to prepare a differential analysis to determine if Charleston Affair should continue (Alternative 1) or replace (Alternative 2) the old machine.

Old Machine:

Estimated annual variable manufacturing costs $18,000 Estimated selling price $10,000 Estimated residual value $6,500 Estimated remaining useful life 7 years

New Machine

Purchase price $110,000 Estimated annual variable manufacturing costs $5,000 Estimated residual value $1,500 Estimated useful life 7 years

Question 3

Blair Designs produces 4,000 yards of Solid Fabric per batch, which sells for $5 per yard. Each batch of Solid Fabric produced incurs $12,000 of costs. The company can incur an additional $3,000 in costs to process the batch of Simple Fabric into 2,400 yards of Patterned Fabric, which sells for $12 per yard. Prepare a differential analysis to determine if the company should sell Solid Fabric (Alternative 1) or process further into Patterned Fabric (Alternative 2).

Question 4

Blair Designs plans the release of a new product in the upcoming year. Use the product cost concept and the information below to determine the following.

Total Product Cost $32,000

Total Selling And Administrative Expenses $8,000

Total Assets $140,000

Estimated Units Produced And Sold 25,000

Desired Rate Of Return On Assets 15%

a. Product cost per unit

b. Desired profit

c. Markup percentage

d. Markup per unit

e. Normal selling price per unit