Sell or Process Further Ibsen Company makes two products from a common input. Joint processing costs up to the split-off point total $43,200 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below Product X Product Y Total Allocated joint processing costs $ 25,600 $ 17,600 $ 43,200 Sales value at split-off point $ 32,000 $ 22,000 $ 54,000 Costs of further processing $ 15,900 $ 17,400 $33,300 Sales value after further processing $ 47,500 $ 40,800 $ 88,300 Required: a What is financial advantage (disadvantage) of processing Product X beyond the split-off point? b. What is financial advantage (disadvantage of processing Product Y beyond the split-off point? c. What is the minimum amount the company should accept for Product Xif it is to be sold at the split-off point? a. What is the minimum amount the company should accept for Product Y if it is to be sold at the split-off point? Volume Trade-off Benoit Company produces three productsA, B, and C. Data concerning the three products follow (per unit): Product B S 56 A $ 80 $ 70 Selling price Variable expenses: Direct materials Other variable expenses Total variable expenses Contribution margin Contribution margin ratio 24 24 48 $ 32 40% 15 27 42 S 14 9 40 49 $ 21 30% 25% The company estimates that it can sell 800 units of each product per month. The same raw material is used in each product. The material costs $3 per pound with a maximum of 5,000 pounds available each month Required: 1. Calculate the contribution margin per pound of the constraining resource for each product. 2. Which orders would you advise the company to accept first, those for A, B, or C? Which orders second? Third? 3. What is the maximum contribution margin that the company can earn per month if it makes optimal use of its 5,000 pounds of materials? Special Order Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per year is: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expense Fixed selling and administrative expense $5.10 $3.80 $1.00 $ 4.20 $1.50 $2.40 The normal selling price is $21 per unit. The company's capacity is 75,000 units per year. An order has been received from a mail-order house for 15.000 units at a special price of $14.00 per unit. This order would not affect regular sales or the company's total fixed costs. Required: 1. What is the financial advantage (disadvantage) of accepting the special order? 2. As a separate matter from the special order, assume the company's inventory includes 1,000 units of this product that were produced last year and 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? Make or Buy Futura Company purchases the 40.000 starters that it installs in its standard line of farm tractors from a supplier for the price of $8.40 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $9.20 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 3.10 2.70 1.50 $ 60,000 1.00 $ 40,000 0.60 0.30 $ 12,000 $ 9.20 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $60,000) to oversee production. However, the company has sufficient idle tools and machinery such 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 $80,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 40,000 starters instead of buying them from an outside supplier