Sales Shine Bright Company has three product lines-D, E, and F. The following information is available: D EF $60,000538,000 $26,000 36.000 18.000 12.000 Variable costs Contribution margin 24,000 20,000 14,000 Fixed expenses 12.000 15.000 16,000 Operating income (loss)$12,000 $5,000 52.0001 Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Shine Bright Company drops product line F and does not replace it, what effect will this have on operating income? Should they drop Product F? **Show your work to support your answer. 2. Shine Bright Company has three product lines-D, E, and F. The following information is available: D E F Sales Variable costs $60,000538,000 $26,000 36.000 18.000 12.000 Contribution margin 24,000 20,000 14,000 Fixed expenses 12.000 15.000 16.000 Operating income (loss)$12,000 $5,0002.0001 Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Shine Bright Company drops product line F and can use the space formerly used to produce product F to generate $17,000 of net income per year, what effect will this have on operating income? Should they drop Product F? **Show your work to support your answer. Lincoln Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows: Direct materials Direct labor (variable cost) Variable manufacturing overhead Fixed manufacturing overhead Total cost Erickson Company has offered to sell 5,000 units of the same part to Lincoln Company for $13 per unit. Assuming the company has no Erickson Company has offered to sell 5,000 units of the same part to Lincoln Company for $13 per unit. Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable, what should Lincoln Company do, make it or buy it? **Show your work to support your answer. +CM Manufacturing has provided the following unit costs pertaining to a component they manufacture and use in the production of one of their main products: Direct materials (variable) $315 Direct labor (variable) Variable manufacturing overbead Fixed manufacturing overhead A supplier has offered to provide the component to CM manufacturing for $500 per unit. CM Manufacturing currently has no plans to use idle space that would be created if accepting offer from supplier. Assuming that CM Manufacturing needs 2,000 components annually and the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if the company outsources? **Show your work to support your answer. A chemical company spent $480,000 to produce 144,000 gallons of a chemical, which can be sold for $4.32 per gallon. The chemical can be further processed into a weed killer which can be sold for $6.40 per gallon; it will cost $256,320 to process the chemical into a weed killer. Should the company sell or process further? **Show your work to support your answer. Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces and sells 5,000 of them per year. Cost data are as follows: Variable manufacturing $105.00 Per un Variable marketing $5.00 Per un Fixed manufacturing Fixed marketing & admin $140,000 year The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats. He proposes a sale of 30 units at a special price of $140 per unit. He says it will not affect the company's regular sales and is a one-time transaction. It will require the normal amount of variable costs, both marketing and manufacturing, but will not impact fixed costs in any way. If the Canadian fishing company accepts the offer, what will the effect be on Potlatch's net income? **Show your work to support 1. Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces and sells 5,000 of them per year. Cost data are as follows: Variable manufacturing $105.00 Per un Variable marketing Fixed manufacturing $5.00 Per un $270,000 year Fixed marketing & admin $140,000 Per year A potential deal has come up for a one time sale of 25 units at a special price of $105 per unit. The marketing manager says that the sale will not negatively impact the company's regular sales activities, but it will require the normal amount of variable marketing costs. The production manager says that there's plenty of excess capacity and the deal will not impact fixed costs in any way. The controller points out, however, that because the incremental revenues are just equal to the incremental costs to fill the order, the deal will not have any impact on the bottom line whatsoever. Is the controller correct in his/her analysis? **Show your work to support your answer 8. Talia Corp. produces digital cameras. For each camera produced, direct materials are $25, direct labor is $18, variable manufacturing overhead is $10, fixed manufacturing overhead is $31, variable selling and administrative expenses are $9, and fixed selling and administrative expenses are $26. Instructions Compute the target-selling price assuming that a 45% markup on total per unit cost. 9. Trout Company is considering introducing a new line of pagers targeting the preteen population. Trout believes that if the pagers can be priced competitively at $45, approximately 500,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,000,000 will be required. Trout requires a minimum rate of return of 14% on all investments. Instructions Compute the target cost per unit of the pager. 10. Rita Corporation produces commercial fertilizer spreaders. The following information is available for Rita's anticipated annual Instructions Compute the target-selling price assuming that a 45% markup on total per unit cost. 9. Trout Company is considering introducing a new line of pagers targeting the preteen population. Trout believes that if the pagers can be priced competitively at $45, approximately 500,000 units can be sold. The controller has determined that an investment in new equipment totaling $4,000,000 will be required. Trout requires a minimum rate of return of 14% on all investments. Instructions Compute the target cost per unit of the pager. 10. Rita Corporation produces commercial fertilizer spreaders. The following information is available for Rita's anticipated annual volume of 400,000 units. Per Unit Direct materials Total $42 Direct labor 54 Variable manufacturing overhead Fixed manufacturing overhead 72 $12,000,000 84 7,200,000 Variable selling and administrative expenses Fixed selling and administrative expenses The company has a desired ROI of 25%. It has invested assets of $144,000,000. Instructions Compute each of the following: 1. Total cost per unit. 2. Desired ROI per unit. 3. Target selling price. The company has a desired ROI of 25%. It has invested assets of $144,000,000. Instructions Compute each of the following: 1. Total cost per unit. 2. Desired ROI per unit. 3. Target selling price. 11. Greasy Spoon Service repairs commercial food preparation equipment. The following budgeted cost data is available for 2006: Time Material Technicians' wages and benefits Charges Charges $600,000 Parts manager's salary and benefits Office manager's salary and benefits $ 72,000 112,000 18,000 Other overhead 48.000 110.000 Total budgeted costs $760,000 $200,000 Greasy Spoon has budgeted for 10,000 hours of technician time during the coming year. It desires a $64 profit margin per hour of labor and a 50% profit margin on parts. Greasy Spoon estimates the total invoice cost of parts and materials in 2006 will be $500,000. Instructions 1. 2. 3. Compute the rate charged per hour of labor. Compute the material loading charge. Greasy Spoon has received a request from Lime Corporation for an estimate to repair a commercial fryer. The company estimates that it would take 20 hours of labor and $8,000 of parts. Compute the total estimated bill.