Question 14-47

Tipton One-Stop Decorating sells paint and paint supplies, carpet, and wallpaper at a single-store location in suburban Des Moines. Although the company has been very profitable over the years, management has seen a significant decline in wallpaper sales and earnings. Much of this decline is attributable to the Internet and to companies that advertise deeply discounted prices in magazines and offer customers free shipping and toll-free telephone numbers. Recent figures follow.

Tipton is studying whether to drop wallpaper because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur (In Excel Doc)

DATA INPUT Overhead cost per machine hour Fixed manufacturing overhead per machine ho Machine hours limit Direct Material Direct Labor Manufacturing overhead Cost if purchased from outside supplier Annual Demand (units) Blender $ $ $ $ $16 $10 50,000 6 4 16 20 20,000 Electric Mixer $ 11 $ 9 $ 32 $ 38 28,000 Problem 14-44 - Production Decisions Limited Capacity 1. Blender Unit cost if purchased from outside supplier Incremental cost if manufactured: Direct Material Direct Labor Variable overhead $16 - $10 per hour fixed $32 - (2)($10 per hour fixed) Total Unit cost savings if manufactured Machine hours equired per unit Cost savings per machine hour if manufactured $0 / hour $0 / hour Electric Mixer ( Therefore each machine hour devoted to the production of machine hour devoted to production Machine hours available Machine Hours needed to manufacture 28000 Electric Mixers Remaining machine hours Number of Blenders to be produced Conclusion: Manufacture Manufacture Purchase Purchase blenders mixers blenders mixers Name: Date: Week 7 Assignment: ACC 185 Managherial Accounting saves the company more than a 85 Managherial Accounting DATA INPUT Sales Variable Costs Fixed Costs Total Costs Operating Income (loss) Remodeling Remodeling Costs Increased Sales Increased Contribution Margin Wallpaper fixed costs cut Loss of Paint Sales New Adveritising Paints & Supplies $ $ $ $ $ $ $ $ 380,000 228,000 56,000 284,000 96,000 Carpeting $ 460,000 $ 322,000 $ 75,000 $ 397,000 $ 63,000 12,400 120,000 5% 40% 20% 25,000 Problem 14-47 - Closing an Unprofitable Department Paints & Supplies Carpeting Sales Less: Variable Costs Contribution Margin If wallpaper is closed, then: Loss of wall paper contribution margin Remodeling Added profitability from carpet sales* Fixed Cost Savings Decreased Contribution Margin from paint & supplies Increased Advertising Total Income (loss) from closure * The current contribution margin ratio for carpeting is This ratio will increase to 35%, producing a new contribution for the line of The end result is that the carpeting's contribution margin will rise by boosting the firm profitability by the same amount Wallpaper $ 140,000 $ 112,000 $ 45,000 $ 157,000 $ (17,000) Wallpaper Name: Date: Week 7 Assignment: ACC 185 Manag Assignment: ACC 185 Managherial Accounting