QUESTION 1 (SPECIAL ORDER)

Waterloo Co. sells product P-14 at a price of $48 a unit. The per-unit cost data are direct materials $15, direct labour $10, and overhead $12 (75% variable). Waterloo Co. has sufficient capacity to accept a special order for 40,000 units, but at a discount of 25% on the regular price. Selling costs associated with this order would be $3 per unit.

Determine whether Waterloo Co. should accept the special order. [5 marks]

QUESTION 2 (MAKE OR BUY)

Emil Manufacturing incurs unit costs of $7.50 ($4.50 variable and $3.00 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 10,000 of the parts for $5 per unit. If it accepts the offer, Emil will save all variable costs and $1 of fixed costs.

Prepare an analysis showing the total cost savings, if any, that Emil will realize by buying the part. [5 marks]

QUESTION 3 (RETAIN OR REPLACE EQUIPMENT)

Chudzick Company has a factory machine with a book value of $180,000 and a remaining useful life of five years. A new machine is available at a cost of $300,000. This machine will have a five-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $700,000 to $550,000.

Prepare an analysis that shows whether Chudzick should retain or replace the old machine. [5 marks]

QUESTION 4 (ELIMINATE UNPROFITABLE SEGMENT)

Lisah Inc. manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $10,000 from sales of $200,000, variable costs $180,000, and fixed costs $30,000. If the Big Bart line is eliminated, $20,000 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated. [5 marks]PART A: SALES, PRODUCTION, AND DIRECT MATERIALS BUDGET

Oak Creek Company is preparing its master budget for 2020. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.

• Sales: Sales for the year are expected to total 1 million units. Quarterly sales are 20%, 25%, 25%, and 30%, respectively. The sales price is expected to be $40 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2021 are expected to be 10% higher than the budgeted sales for the first quarter of 2020.
• Production: Management desires to maintain the ending finished goods inventories at 20% of the next quarter's budgeted sales volume.
• Direct materials: Each unit requires 2 kg of raw materials at a cost of $10 per kilogram. Management desires to maintain raw materials inventories at 10% of the next quarter's production requirements. Assume the production requirements for the first quarter of 2020 are 500,000 kg.

Instructions

Prepare the sales, production, and direct materials budgets by quarters for 2020. [10 marks]

PART B: BUDGETED INCOME STATEMENT

Oak Creek Company is preparing its budgeted income statement for 2020. Relevant data pertaining to its sales, production, and direct materials budgets are found in Part A above.

In addition, Oak Creek budgets 0.3 hours of direct labour per unit, labour costs at $14 per hour, and manufacturing overhead at $20 per direct labour hour. Its budgeted selling and administrative expenses for 2020 are $7 million.

Instructions

1. Calculate the budgeted total unit cost. [2 marks]
2. Prepare the budgeted income statement for 2020. [3 marks]