Required:

What is the profit or loss from additional processing? (A loss amount should be entered as a negative number.)

A number of costs are listed below that may be relevant in decisions faced by the management of Svahn, AB, a Swedish manufacturer of sailing yachts:

Requirement 1 relates to Case 1, and requirement 2 relates to Case 2. Consider the two cases independently.

1.	The company chronically has no idle capacity and the old Model B100 machine is the companys constraint. Management is considering purchasing a Model B300 machine to use in addition to the companys present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the companys production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead.
2.	The old Model B100 machine is not the companys constraint, but management is considering replacing it with a new Model B300 machine because of the potential savings in direct materials with the new machine. The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste.

Required:

Indicate whether each item is relevant or not relevant in the following situations.

Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):

	Product
	A				B				C
Selling price	$	75			$	55			$	65
Variable expenses:
Direct materials		22.50				16.50				4.55
Other variable expenses		22.50				24.75				40.95
Total variable expenses		45.00				41.25				45.50
Contribution margin	$	30.00			$	13.75			$	19.50
Contribution margin ratio		40	%			25	%			30	%

Demand for the companys products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $7 per pound with a maximum of 4,800 pounds available each month.

Required:

a.	Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)

b.	Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?

Delta Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 87,600 units per year is:

Direct materials	$	1.90
Direct labor	$	2.00
Variable manufacturing overhead	$	.60
Fixed manufacturing overhead	$	3.85
Variable selling and administrative expenses	$	1.30
Fixed selling and administrative expenses	$	1.00

The normal selling price is $20 per unit. The companys capacity is 100,800 units per year. An order has been received from a mail-order house for 1,100 units at a special price of $17.00 per unit. This order would not affect regular sales.

Required:

1.	If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the companys total fixed costs.)

2.

Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)

For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to produce the starters. The chief engineer has recommended against this move, however, pointing out that the per unit cost to produce the 60,000 starters needed would be greater than the current $10.30 per unit purchase price:

	Per Unit		Total
Direct materials	$	5.00
Direct labor		2.50
Supervision		1.70	$	102,000
Depreciation		1.00	$	60,000
Variable manufacturing overhead		0.40
Rent		0.60	$	36,000
Total product cost	$	11.20

A supervisor would have to be hired to oversee production of the starters. However, the company has sufficient idle tools and machinery so that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $87,000 per period. Depreciation is due to obsolescence rather than wear and tear.

Required:

1.	Determine the total relevant cost per unit if starters are made inside the company. (Round your answer to 2 decimal places.)

2.	Determine the total relevant cost per unit if starters are purchased from an outside supplier. (Round your answer to 2 decimal places.)

3.	What is the increase or decrease in profits as a result of purchasing the starters from an outside supplier rather than making them inside the company? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Bed & Bath, a retailing company, has two departments, Hardware and Linens. The companys most recent monthly contribution format income statement follows:

				Department
	Total			Hardware			Linens
Sales	$	4,340,000		$	3,180,000		$	1,160,000
Variable expenses		1,294,000			874,000			420,000
Contribution margin		3,046,000			2,306,000			740,000
Fixed expenses		2,300,000			1,460,000			840,000
Net operating income (loss)	$	746,000		$	846,000		$	(100,000	)

A study indicates that $377,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 13% decrease in the sales of the Hardware Department.

Required:

If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?