Question 9.1

Wild Oats Company makes 30,000 units per year of a part that it uses in the products it manufactures. The unit product cost of this part is computed as follows:

Direct MaterialsDirect Labour$24.00Variable Manufacturing Overhead$13.00Fixed Manufacturing Overhead$4.00Unit Product Cost$12.20$53.20

An outside supplier has offered to sell the company all the parts that Wild Oats needs for $50.00 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $45,000 per year. If the part were purchased from the outside supplier, all of the direct labour cost of the part would be avoided. However, $5.60 of the fixed manufacturing overhead cost that is being applied to the part would continue, even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

Required:

1. How much of the unit product cost of $53.20 is relevant in the decision of whether to make or buy the part?
2. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
3. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year?

Question 9.2

Guasman Company produces products R, J, and C from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $92,000 per year are allocated to the products based on the relative number of units produced. Data for Guasman's operations for the current year are as follows:

UnitsAllocated JointSales ValueProductProducedProduction CostAt Split-offR8,000$32,000$76,000J10,00040,00071,000C5,00020,00048,000

Product R can be processed beyond the split-off point for an additional cost of $26,000 and can then be sold for $105,000. Product J can be processed beyond the split-off point for an additional cost of $38,000 and can then be sold for $117,000. Product C can be processed beyond the split-off point for an additional cost of $12,000 and can then be sold for $57,000.

Required:

1. Which products should be processed beyond the split-off point?

Question 9.3

Guerrero Company makes three products in a single facility. These products have the following unit product costs:

ProductsABCDirect materials$10.90$15.80$8.00Direct labour12.5012.609.90Variable manufacturing overhead2.401.201.40Fixed manufacturing overhead11.607.207.80Unit product cost$37.40$36.80$27.10

Additional data concerning these products are listed below.

ProductsABCMixing minutes per unit2.001.000.50Selling price per unit$55.80$54.60$43.10Variable selling cost per unit$2.10$1.40$1.90Monthly demand in units2,0001,0003,000

The mixing machines are potentially a constraint in the production facility. A total of 5,900 minutes are available per month on these machines. Direct labour is a variable cost in this company.

Required:

1. How many minutes of mixing machine time would be required to satisfy demand for all four products?
2. How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income
3. Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity?

Question 9.4

Manoah Company makes 4,000 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow:

Direct Materials$35Direct Labour$10Variable Manufacturing Overhead$8Fixed Manufacturing Overhead$20Total Manufacturing Cost per Unit$73

An outside supplier has offered to sell Manoah Company all of the axial taps it requires. If Manoah Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labour is a variable cost.

Required:

1. AssumeManoah Company has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for $65 each, shouldManoah Company accept the offer? Fully support your answer with appropriate calculations.
2. Assume thatManoah Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of $80,000 annually. What is the maximum priceManoah Company should be willing to pay the outside supplier for axial taps?

ABSOLUTELY NO AI/ ChatGPT should be used.