Question
Question 1 Make-or-Buy Decision for a Service Company The Theater Arts Guild of Dallas (TAG-D) employs five people in its Publication Department. These people lay
Question 1
Make-or-Buy Decision for a Service Company
The Theater Arts Guild of Dallas (TAG-D) employs five people in its Publication Department. These people lay out pages for pamphlets, brochures, magazines, and other publications for the TAG-D productions. The pages are delivered to an outside company for printing. The company is considering an outside publication service for the layout work. The outside service is quoting a price of $13 per layout page. The budget for the Publication Department for the current year is as follows:
Salaries | $224,000 |
Benefits | 36,000 |
Supplies | 21,000 |
Office expenses | 39,000 |
Office depreciation | 28,000 |
Computer depreciation | 24,000 |
Total | $372,000 |
The department expects to lay out twenty four thousand pages for the current year. The Publication Department office space and equipment would be used for future administrative needs, if the department's function were purchased from the outside.
a. A differential analysis dated February 22 to determine whether TAG-D should lay out pages internally (Alternative 1) or purchase layout services from the outside (Alternative 2). If an amount is zero, enter "0".
Lay Out Pages Internally (Alternative 1) | Purchase Layout Services (Alternative 2) | Differential Effects (Alternative 2) | |
Costs: | |||
Purchase price of layout work | $fill in the blank 8b526107004d07b_1 | $fill in the blank 8b526107004d07b_2 | $fill in the blank 8b526107004d07b_3 |
Salaries | fill in the blank 8b526107004d07b_4 | fill in the blank 8b526107004d07b_5 | fill in the blank 8b526107004d07b_6 |
Benefits | fill in the blank 8b526107004d07b_7 | fill in the blank 8b526107004d07b_8 | fill in the blank 8b526107004d07b_9 |
Supplies | fill in the blank 8b526107004d07b_10 | fill in the blank 8b526107004d07b_11 | fill in the blank 8b526107004d07b_12 |
Office expenses | fill in the blank 8b526107004d07b_13 | fill in the blank 8b526107004d07b_14 | fill in the blank 8b526107004d07b_15 |
Office depreciation | fill in the blank 8b526107004d07b_16 | fill in the blank 8b526107004d07b_17 | |
Computer depreciation | fill in the blank 8b526107004d07b_18 | fill in the blank 8b526107004d07b_19 | |
Total costs | $fill in the blank 8b526107004d07b_20 | $fill in the blank 8b526107004d07b_21 | $fill in the blank 8b526107004d07b_22 |
b. The benefit from using an outside service is shown to be
Greater or Less
than performing the layout work internally. The fixed costs (depreciation expenses) in the budget are
relevant or irrrelevant
to the decision. Thus, the work should
be not be
purchased from the outside on a strictly financial basis.
c. Before electing to
keep or play off
the five employees, the TAG-D should consider the
short-run impactlong-run impact
of the decision.
Question 2
Total Cost Method of Product Pricing
Smart Stream Inc. uses the total cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 8,000 units of cell phones are as follows:
Variable costs per unit: | Fixed costs: | |||
Direct materials | $ 75 | Factory overhead | $301,900 | |
Direct labor | 35 | Selling and administrative expenses | 106,100 | |
Factory overhead | 23 | |||
Selling and administrative expenses | 17 | |||
Total variable cost per unit | $150 |
Smart Stream desires a profit equal to a 14% return on invested assets of $941,830.
a. Determine the total costs and the total cost amount per unit for the production and sale of 8,000 cellular phones. Round the cost per unit to two decimal places.
Total cost | $fill in the blank 1 |
Total cost amount per unit | $fill in the blank 2 |
b. Determine the total cost markup percentage for cellular phones. Round answer to two decimal places. fill in the blank 3 %
c. Determine the selling price of cellular phones. Round to the nearest cent. $fill in the blank 4 per cellular phone
Question 4
Differential Analysis for a Discontinued Product
A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year:
Sales | $233,800 |
Cost of goods sold | (111,000) |
Gross profit | $122,800 |
Operating expenses | (144,000) |
Operating loss | $(21,200) |
It is estimated that 15% of the cost of goods sold represents fixed factory overhead costs and that 23% of the operating expenses are fixed. Because Mango Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.
a. A differential analysis dated February 29 to determine whether Mango Cola should be continued (Alternative 1) or discontinued (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Continue Mango Cola (Alternative 1) | Discontinue Mango Cola (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | $fill in the blank 09453e054fee068_1 | $fill in the blank 09453e054fee068_2 | $fill in the blank 09453e054fee068_3 |
Costs: | |||
Variable cost of goods sold | fill in the blank 09453e054fee068_4 | fill in the blank 09453e054fee068_5 | fill in the blank 09453e054fee068_6 |
Variable operating expenses | fill in the blank 09453e054fee068_7 | fill in the blank 09453e054fee068_8 | fill in the blank 09453e054fee068_9 |
Fixed costs | fill in the blank 09453e054fee068_10 | fill in the blank 09453e054fee068_11 | fill in the blank 09453e054fee068_12 |
Profit (Loss) | $fill in the blank 09453e054fee068_13 | $fill in the blank 09453e054fee068_14 | $fill in the blank 09453e054fee068_15 |
b. Should Mango Cola be retained?
YesNo
Question 6
Differential Analysis for Machine Replacement Proposal
Franklin Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:
Old Machine | |
Cost of machine, ten-year life | $107,100 |
Annual depreciation (straight-line) | 10,710 |
Annual manufacturing costs, excluding depreciation | 37,600 |
Annual nonmanufacturing operating expenses | 11,700 |
Annual revenue | 94,400 |
Current estimated selling price of the machine | 35,500 |
New Machine | |
Cost of machine, six-year life | $138,600 |
Annual depreciation (straight-line) | 23,100 |
Estimated annual manufacturing costs, exclusive of depreciation | 17,400 |
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.
Required:
1. A differential analysis as of November 8 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the differential profit that would result over the six-year period if the new machine is acquired. If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Continue with Old Machine (Alternative 1) | Replace Old Machine (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | |||
Proceeds from sale of old machine | $fill in the blank adeda2f76fff063_1 | $fill in the blank adeda2f76fff063_2 | $fill in the blank adeda2f76fff063_3 |
Costs | |||
Purchase price | fill in the blank adeda2f76fff063_4 | fill in the blank adeda2f76fff063_5 | fill in the blank adeda2f76fff063_6 |
Annual manufacturing costs (6 yrs.) | fill in the blank adeda2f76fff063_7 | fill in the blank adeda2f76fff063_8 | fill in the blank adeda2f76fff063_9 |
Profit (loss) | $fill in the blank adeda2f76fff063_10 | $fill in the blank adeda2f76fff063_11 | $fill in the blank adeda2f76fff063_12 |
2. What other factors should be considered before a final decision is reached?
- Are there any improvements in the quality of work turned out by the new machine?
- What opportunities are available for the use of the funds required to purchase the new machine?
- Are there any improvements in the quality of work turned out by the new machine and what opportunities are available for the use of the funds required to purchase the new machine?
- What affect would this decision have on employee morale?
- None of these choices are correct.
abcde
Differential Analysis for a Lease or Sell Decision
Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $400,600 less accumulated depreciation of $119,000) for $275,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,200 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,300.
Question Content Area
a. A differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.
Lease Machinery (Alternative 1) | Sell Machinery (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | $fill in the blank be72d8020feafe3_1 | $fill in the blank be72d8020feafe3_2 | $fill in the blank be72d8020feafe3_3 |
Costs | fill in the blank be72d8020feafe3_4 | fill in the blank be72d8020feafe3_5 | fill in the blank be72d8020feafe3_6 |
Profit (Loss) | $fill in the blank be72d8020feafe3_7 | $fill in the blank be72d8020feafe3_8 | $fill in the blank be72d8020feafe3_9 |
Question Content Area
b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Lease the machinerySell the machinery
Question 7
Differential Analysis for a Lease or Sell Decision
Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $400,600 less accumulated depreciation of $119,000) for $275,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,200 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,300.
a. A differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.
Lease Machinery (Alternative 1) | Sell Machinery (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | $fill in the blank b68316fbc071fae_1 | $fill in the blank b68316fbc071fae_2 | $fill in the blank b68316fbc071fae_3 |
Costs | fill in the blank b68316fbc071fae_4 | fill in the blank b68316fbc071fae_5 | fill in the blank b68316fbc071fae_6 |
Profit (Loss) | $fill in the blank b68316fbc071fae_7 | $fill in the blank b68316fbc071fae_8 | $fill in the blank b68316fbc071fae_9 |
b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Lease the machinerySell the machinery
Question 8
Differential Analysis Involving Opportunity Costs
On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,100 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:
Cost of store equipment | $149,100 |
Life of store equipment | 16 years |
Estimated residual value of store equipment | $18,800 |
Yearly costs to operate the warehouse, excluding depreciation of equipment | $56,300 |
Yearly expected revenuesyears 1-8 | 74,500 |
Yearly expected revenuesyears 9-16 | 69,100 |
Required:
1. A differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Operate Warehouse (Alternative 1) | Invest in Bonds (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | $fill in the blank f675acf86fed04d_1 | $fill in the blank f675acf86fed04d_2 | $fill in the blank f675acf86fed04d_3 |
Costs: | |||
Costs to operate warehouse | fill in the blank f675acf86fed04d_4 | fill in the blank f675acf86fed04d_5 | fill in the blank f675acf86fed04d_6 |
Cost of equipment less residual value | fill in the blank f675acf86fed04d_7 | fill in the blank f675acf86fed04d_8 | fill in the blank f675acf86fed04d_9 |
Profit (Loss) | $fill in the blank f675acf86fed04d_10 | $fill in the blank f675acf86fed04d_11 | $fill in the blank f675acf86fed04d_12 |
2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
YesNo
3. If the proposal is accepted, what is the total estimated operating income of the warehouse for 16 years? $fill in the blank 4cdb5afeff8cfb7_2
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