Question 1
Machine Replacement Decision
Brightstone Tire and Rubber Company has capacity to produce 179,000 tires. Brightstone presently produces and sells 137,000 tires for the North American market at a price of $93 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 21,000 tires for $76.35 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows: Direct materials $35 Direct labor 13 Factory overhead (70% variable) 21 Selling and administrative expenses (30% variable) 19 Total $88 Brightstone pays a selling commission equal to 5% of the selling price on North American orders, which is included in the variable portion of the selling and administrative expenses. However, this special order would not have a sales commission. If the order was accepted, the tires would be shipped overseas for an additional shipping cost of $5 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certication would cost $102,900. a. Prepare a differential analysis dated January 21 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) January 21 Reject Accept Differential Order Order Effect (Alternative 1) (Alternative 2) on Income (Alternative 2) Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling and admin. expenses Shipping costs Certification costs Income (Loss) Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. Accept the special order b. What is the minimum price per unit that would be financially acceptable to Brightstone? Round your answer to two decimal places. $ per unitCountry Jeans Co. has an annual plant capacity of 64,000 units, and current production is 46,800 units. Monthly xed costs are $38,700, and variable costs are $25 per unit. The present selling price is $35 per unit. On November 12 of the current year, the company received an offer from Miller Company for 16,200 units of the product at $29 each. Miller Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Country Jeans Co. a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Miller order. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) November 12 Reject Accept Dlgzrett'al Order Order on 1'1:sz (Alternative 1} (Alternative 2} _ (Alternatlve 2} > Revenues '- 469,800 a 469,800 Costs: 405.000 405.000 Variable manufacturing costs '. 64,800 '- 64,800 as a "II I "II I Income (Loss) b. Having unused capacity available is relevant to this decision. The differential revenue is more than the differential cost. Thus, accepting this additional business will result in a net gain c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places. E A company is considering replacing an old piece of machinery, which cost $599,300 and has $340,300 of accumulated depreciation to date' with a new machine that has a purchase price of $486,200. The old machine could be sold for $61,100. The annual variable production costs associated with the old machine are estimated to be $158,600 per year for eight years. The annual variable production costs for the new machine are estimated to be $99,800 per year for eight years. a. Prepare a differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2} April 29 Continue Replace Differential with Old Old Effect Machine Machine on Income (Alternative 1} (Alternative 2} (Alternative 2) Revenues: Proceeds from sale of old machine a 9' '- -61.000 X 2 -61.000 X Costs: Purchase price El 4' 486.200 v' 486.200 4' Variable productions costs (8 years) 4363300 'I \"793400 'I 470-400 'I Incomeuoss) ._ 4.263.800 J -. 4.345.600 x ._ 76.800 x
