SET 1 Question 1 - Sell / Process Further The following information relates to three separate products manufactured by the Wooden Classics Inc. They share a common joint cost of $250,000. The products can each be sold at the split off point or they can be further processed and sold at a higher price. Details are provided below: Products Sales Value Costs to Sales Value after at Split Off Process Further Further Processing A $150,000 $275,000 $390,000 $95,000 $150,000 $275,000 $175,000 $300,000 $475,000 Required: a) Using incremental analysis determine which products should be sold at split-off point and which should be processed further. b) Briefly describe the treatment of Joint Costs when making a sell-or-process-further decision. Question 2 - Eliminate unprofitable segment Bowlers Inc is trying to decide whether or not to continue making bowling shoes. The following information is available for the segments: Bowling Bowling Bowling Shoes Bowls Bags Sales $120,000 $420,000 $360,000 Variable Costs 64,000 220,000 140,000 Contribution Margin 56,000 200,000 220,000 Direct Fixed Costs 40,000 70,000 90,000 Allocated Fixed Costs 20,000 70,000 60,000 Net Income ($4.000) $60,000 $70,000 Assume that all direct fixed costs could be avoided if a segment is dropped, however the allocated fixed costs are unavoidable and will be apportioned equally among the remaining segments. Required: a) Calculate the impact on Net Income of eliminating the Bowling Shoes segment b) Based solely on your calculation in part (a) above, should the Bowling Shoes Segment be eliminated?Question 3 - Repair/ Retain Hudson Company manufactures a variety of products for the building industry. Hudson currently uses a machine purchased one year ago with a remaining useful life of three years original cost of $100,000, book value of $75,000). Variable costs associated with use of this machine are $180,000 per year. If the old machine is replaced it will be sold for $60,000. An advanced technology version of the machine is now available and can be purchased for $90,000. The new machine is more efficient, has a 3-year life, and will reduce variable costs by 20%. These details are summarized below: Old Machine New Machine Original cost $100,000 $90,000 Book value $75.000 Not applicable Variable costs per year $180,000 20%% less Salvage value $60,000 Not applicable Useful Life 3 yrs 3 yrs Required: (a) Calculate the gain or loss on disposal on the old machine. (b) Prepare an analysis to show whether Hudson Company should retain or replace the old machine. Question 4 - Special Order Lunker Lures Company produces the popular Rippin' Rogue. The cost to produce a Rippin' Rogue is $1.10, consisting of $0.20 direct materials, $0.40 direct labor, and $0.50 factory overhead. The factory overhead is 30% variable and 70% fixed cost allocation. Rippin' Roques are sold to retailers across the country through an established network of manufacturers' representatives who are paid $0.10 for each lure sold in their respective territories. Lunker Lures has been approached by Walleye Pro Fishing World to produce a special run of 1,000,000 units. These lures would be sold under the Walleye Wiggler brand name and would not otherwise compete with sales of Rippin' Rogues. Walleye Pro Fishing World's offer is priced at $1.00 per unit. Lunker Lures is obligated to pay its network of manufacturers' representatives half of the normal rep. fee for such private label transactions. Required: a) Should Lunker Lures accept the special order? b) What nonfinancial factors should management consider in making its decision?Question 4 - Special Order Lunker Lures Company produces the popular Rippin' Rogue. The cost to produce a Rippin' Rogue is $1.10, consisting of $0.20 direct materials, $0.40 direct labor, and $0.50 factory overhead. The factory overhead is 30% variable and 70% fixed cost allocation. Rippin' Roques are sold to retailers across the country through an established network of manufacturers' representatives who are paid $0.10 for each lure sold in their respective territories. Lunker Lures has been approached by Walleye Pro Fishing World to produce a special run of 1,000,000 units. These lures would be sold under the Walleye Wiggler brand name and would not otherwise compete with sales of Rippin' Rogues. Walleye Pro Fishing World's offer is priced at $1.00 per unit. Lunker Lures is obligated to pay its network of manufacturers' representatives half of the normal rep. fee for such private label transactions. Required: a) Should Lunker Lures accept the special order? b) What nonfinancial factors should management consider in making its decision?Question 5 - Make/Buy Nebular Corp is now making a small part that is used in one of its products. The company's accounting department reports the following per unit costs of producing the part internally. Direct materials $15.00 Direct labor 10.00 Variable manufacturing overhead 2.00 Fixed manufacturing overhead, traceable 4.00 Fixed manufacturing overhead, allocated 5.00 Unit product cost $36.00 Of the traceable fixed manufacturing overhead cost, 25% represent supervisory salaries which could be avoided if production of the part were discontinued. The decision would have no effect on the allocated fixed manufacturing overhead costs of the company. An outside supplier has offered to sell the part to Jackson Company for $30 each, based on an order of 5,000 parts per year. Required: a) Should Nebular Corp accept this offer, or continue to make the parts internally? b) If the small parts are purchased and Nebular Corp utilizes the idle facilities to earn additional income of $20,000, will this change your answer in part a)? c) What nonfinancial factors should management consider in making its decision?SET 2 Question 1 - Sell / Process Further Jamieson Inc. manufactures three products using the same production process. These costs are allocated to the products on the basis of their sales value at the split-off point. The following information has been provided: Cost incurred up to the split-off point - $315,000. NUMBER OF SELLING PRICE SELLING PRICE PER ADDITIONAL PRODUCT UNITS PER UNIT UNIT AFTER PROCESSING PRODUCED AT SPLIT-OFF FURTHER PROCESSING COSTS Vit #A 4,000 $20.00 $30.00 14,000.00 Vit #B 6,000 $24.00 $32.40 2,000.00 Vit #C 2,000 $48.00 $50.00 9,000.00 Required: (a) Identify which of the information provided above is relevant and which is irrelevant to the decision on whether or not to process the products further? Give reasons for your answer. (b) Using incremental analysis recommend which products should be sold at the split-off point and which should be processed further.Question 2 - Eliminate unprofitable segment Part A Identify at least five (5) factors which must be consider when making a decision on the elimination of an unprofitable segment. Part B JNJ Inc has four main departments, namely: Beauty; Essentials; Teens and Men. The company is currently considering eliminating its Men's department, which has been incurring annual losses. The results for the last year showed the following: Beauty Essentials Teens Men Total $ $ S $ Sales 42,000 14,000 7,000 7,000 70,000 Less: Variable Costs 33.000 9,000 4.000 6,000 52,000 Contribution Margin 9,000 5,000 3,000 1,000 8,000 Less: Fixed Costs Salaries 2,000 2,500 1,900 1,100 7,500 Utilities 400 50 100 150 700 Depreciation 100 50 100 50 300 Administration 4,800 1,600 800 BO0 8,000 Total Fixed Costs 7.300 4.200 2.900 2.100 16.500 Net Operating Income / (Loss) 1.700 100 1.1001 1.500 The following additional information is supplied about the fixed costs: Salaries - 40% of the staff employed in the Men's department will be transferred to other departments. The remainder will be dismissed. ii. Administration - There will be an overall saving of $120 in these costs ili. There will be no reduction in the Depreciation and Utilities Costs. Required: Advise JNJ Inc. on whether it is more profitable to eliminate the Men's department.Question 3 - Repair/Retain Juniper Corp. installed new factory equipment at the beginning of 2017. However its owner recently visited an exhibition where he saw computerized equipment performing the same functions which he was very impressed with. His accountant was asked to provide the following financial information as shown below. OLD NEW EQUIPMENT EQUIPMENT Purchase price $300,000 $400,000 Estimated salvage value $0 $0 Estimated useful life 6 years 5 years Depreciation Method Straight Line Straight Line Annual operating costs other than depreciation: Variable $65,000 $25,000 Fixed $50,000 $16,000 Annual Revenues are $650,000 and Selling and Administrative Expenses are $55,000 regardless of which equipment is used. If the old equipment is replaced now, at the beginning of 2018, Juniper Corp. will be able to sell it for $55,000. Required: (a) Determine any gain or loss if the old equipment is replaced. (b) Using incremental analysis, determine if the old equipment should be replaced. (c) Write a memo to the owner of Juniper Corp. explaining why any gain or loss should be ignored in the decision to replace the old equipment.Question 4 - Special Order SportAdva Inc. is the creator of QuickDri, a material that dries quickly and controls odour. The material is popular for use in active wear however the company competes with the likes of Nike's Dri-Fit and Under Armour's HeatGear. Currently, the company has the capacity to supply 1,000,000 QuickDri shirts annually. The per unit and total cost for the shirts, when the company operates at full capacity, is shown below: PER SHIRT TOTAL Direct materials 2.00 2,000,000 Direct labour 0.75 750,000 Variable manufacturing overhead 1.00 1,000,000 Fixed manufacturing overhead 1.50 1,500,000 Variable selling expenses 0.25 250,000 TOTAL 5.50 $ 5,500,000 The company has been approached by the Boy Scouts of America for an order of 150,000 shirts for their annual global jamboree. The total budget for all the shirts is $712,500. The organisation has also requested that SportAdva Inc. include the Boy Scouts Logo on the front of the shirt and "Jamboree 2018" at the back. The company has estimated that these additional printing costs would be $1.50 per shirt. If SportAdva accepts the order no variable selling expenses would be incurred. The company is currently operating at 70% capacity. Required: (a) Using incremental analysis, determine whether SportAdva should accept the order from Boy Scouts of America. (b) The marketing manager believes that regardless of the outcome of the incremental analysis performed in part (a) above there are several advantages to the company of accepting the order and disadvantages of rejecting the order. Discuss one advantage of accepting the order (apart from any financial advantage calculated in part (a)) and one disadvantage of rejecting the order that the marketing manager might put forward to the company.Question 5 - Make/Buy Caribplast is trying to decide whether to continue manufacturing a part used in finished product or to purchase it from an outside supplier. The part is called Nova 1. For the year ended December 31, 2017 the following information was collected from the relevant departments. 1. 3000 units of Nova 1 were produced by the machining department. 2. Variable costs Direct Materials 5.00 Direct Labour 4.60 Indirect Labour 0.40 Utilities 0.30 3. Fixed costs COST ITEM DIRECT ALLOCATED Depreciation $550 $450 Property Taxes $250 $100 Insurance $450 $300 All variable manufacturing and direct fixed costs will be eliminated if Nova 1 is purchased. 4. Nova 1 can be purchased for $33,000. 5. If Caribplast decides to purchase Nova 1, freight and inspection costs would be $0.30 per unit and receiving costs totalling $250 per year would be incurred by the machining department. Required: (a) Prepare an incremental analysis for Nova 1 (reflecting 'Make' and "Buy' costs). (b) Based on your analysis what decision should management make? (c) Would the decision be different if Caribplast has the opportunity to earn $3,000 Net Income with the facilities currently being used to manufacture Nova 1? Show computations. (d) What nonfinancial factors should management consider in making its decision?CHAPTER 9 Comprehensive Question The following data relates to a company that produces diving equipment. The firm expects to sell 1,000 units of finished goods during the month of July 2020. Sales are expected to increase by 10% monthly thereafter. Selling price per unit is $140.00. Sales are 50% cash and 50% credit. Of the credit sales, half are collected in the month of sale, and the remainder in the month following the sale. The accounts receivable balance on June 30, 2020 was $40,000.00. The firm's target ending inventory for finished goods is 50% of the following month's sales requirement. The ending inventory for finished goods as at June 30, 2020 was 480 units. Every unit produced requires 2 pounds of direct materials at a cost of $3.00 per pound. The desired ending inventory in raw materials is 20% of the following month's material needs. October's material needs are 2,700 pounds. The ending inventory for direct materials as at June 30, 2020 was 330 pounds. One half a month's direct materials purchases are paid for in the month of purchase, the remainder is paid in the following month. The accounts payable balance on June 30, 2020 was $3,000.00. Each unit produced requires 3 direct labour hours to manufacture at $7.00 per hour. Variable overhead is budgeted to be $8.00 per direct labour hour. Fixed overhead is budgeted at $5,400.00 per month, which includes $500.00 in depreciation. The variable selling and administrative costs are 14% of sales revenue ($). Fixed S&A cost is $7,800.00, which includes $760.00 in depreciation. On June 30, 2020 the firm has a cash balance of $25,000.00. During August 2020 equipment is expected to be purchased for $32,000.00 cash. Dividends of $15,000 will be paid in September 2020. Required: Prepare the following by months for the quarter July to September 2020 (Round ALL calculations to nearest whole number): a) Sales/Revenue Budget b) Cash Receipts Budget c) Production Budget d) Direct Materials Purchases Budget e) Direct Materials Purchases - Cash Payment Budget f) Direct Labour budget g) Manufacturing Overhead Budget h) Selling & Admin. Budget i) Comprehensive Cash Budget