QUESTION 1

XL Corp. has excess manufacturing capacity. The company has received a special order from XS Company requesting 500 of XL's computer keyboards at a price of $65 each. The keyboards will require special engraving of SX's corporate logo. XS needs the keyboards because its normal supplier has shut down production due to a labor strike.

XL's normal selling price is $85 per unit. Managers estimate the variable cost of thekeyboards at $35 per unit; fixed manufacturing overhead is $40 per unit. If the XL order is accepted, additional fixed costs of $8,000 will be incurred due to the rental of a special machine needed to etch XS's corporate logo; the remainder of the fixed cost is attributable to costs that will be incurred regardless of whether the keyboards are produced.

Give the above information, should XL accept the offer from XS? A YES OR NO ANSWER IS NOT SUFFICIENT. SHOW ALL OF YOUR NUMERICAL WORK!

QUESTION 2

List 2 qualitative factors that must be considered in making the decision to accept or reject the XS offer.

QUESTION 3

AC currently makes the 15,000 ball bearings it uses each year in assembling car wheels. Thee is no other use for these production facilities, nor is there a market for the equipment that makes the ball bearings. DC has just submitted a bed to manufacture the ball bearings for AC at a price of $20 per bearing. If AC no longer makes the ball bearings, the product manager will lose his job. The costs for making one ball bearing are listed as follows:

Direct materials $6

Direct labor $8

Variable overhead $1

Fixed overhead (direct) $5

Fixed overhead (common)$10

Note: 40% of the direct fixed overhead is related to the product manager's salary. The other 60% is unavoidable. Common fixed overhead is unavoidable.

Does it make sense for AC to purchase the ball bearings from DC/ SHOW ALL OF YOUR CALCULATIONS!

QUESTION 4

Assume that AC has the opportunity to use the ball bearing manufacturing space to increase production of its bicycle tire line. This additional production would generate $65,000 a year in contribution margin. Does it make sense for ACT to purchase the ball bearings from DC, given these changes? SHOW ALL OF YOUR CALCULATIONS!

QUESTION 5

What 3 nonfinancial considerations could have an impact on the decision to outsource?

QUESTION 6

GHB Company produces a salt-free, whole-grain bread and a carob-chip cake. The demand for these products is exceeding GHB's production capacity. The company has only 80,000 direct labor hours available. A case of bread requires one direct labor hour, while a case of cookies requires half a direct labor hour. The company estimates that it can sell 100,000 cases of bread and 50,000 cases of cookies in the next year. The following financial information is available:

BREAD COOKIES

Selling price per case $60 $30

Variable costs per case $25 $10

How should GHB allocate its production capacity between bread and cookies. SHOW YOUR CALCULATIONS!