To maximize profits, how many of each size bin should StoreAll produce?

Given this product mix, what will the companys operating income be?

What is the unit cost of making the bread in-house (use absorption costing)?

Q21. Should Roasted Olive bake the bread in-house or buy from the local bakery? Why?

In addition to the financial analysis, what else should Roasted Olive consider when making this decision?

Which alternative will maximize Joness short-term operating income?

Q24. What qualitative factors should Jones consider before making a final decision?

Explain what is relevant and irrelevant to Jacobs dilemma. What should he do?

Prepare an incremental analysis to determine whether Hobby-Cardz should accept the special sales order.

Q27. Now assume that the Hall of Fame wants special hologram baseball cards. Hobby-Cardz will spend $5,900 to develop this hologram, which will be useless after the special order is completed. Should Hobby-Cardz accept the special order under these circumstances?

Q28. How would accepting the order affect San Joses operating income? In addition to the special orders effect on profits, what other (longer-term qualitative) factors should San Joses managers consider in deciding whether to accept the order?

Q29. San Joses marketing manager, Peter Bing, argues against accepting the special order because the offer price of $80 is less than San Joses $84 cost to make the sunglasses. Bing asks you, as one of San Joses staff accountants, to explain whether his analysis is correct.

Which approach to pricing should Stenback Builders emphasize? Why?

Will Stenback Builders be able to achieve its target profit levels?

Q32. Bathrooms and kitchens are typically the most important selling features of a home. Stenback Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $22,000 per home but would enable Stenback Builders to increase the selling prices by $38,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Stenback Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner?

Q33. Prepare an incremental analysis to show whether Movie Street should drop the VCR-tape product line. Will dropping VCR tapes add $41,000 to operating income?

What is the constraint?

Which model should Lifemaster produce? ( Hint: Use the allocation of fixed manufac- turing overhead to determine the proportion of machine hours used by each product.)

Q36. If Lifemaster should produce both models, compute the mix that will maximize operating income.

What is Neds Beach Huts constraining factor? What should Ned stock to max- imize profits?

Q38. Suppose Neds Beach Hut refuses to devote more than 75 linear feet to any individ- ual product. Under this condition, how many linear feet of each drink should Neds stock? How many units of each product will be available for sale each day?

Q39. Should Naturalmaid continue to sell only the gallon-size plain yogurt (sell as is), or convert the plain yogurt into individual-size portions of fruited yogurt (process further)? Why?

Green Thumbs owners want to earn a 10% return on the companys assets. What is Green Thumbs target full cost?

Q41. Given Green Thumbs current costs, will its owners be able to achieve their tar- get profit?

Assume Green Thumb has identified ways to cut its variable costs to $1.20 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit?

Q43. Green Thumb started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Monrovia Plants made this strategy work so Green Thumb has decided to try it, too. Green Thumb does not expect vol- ume to be affected, but it hopes to gain more control over pricing. If Green Thumb has to spend $115,000 this year to advertise, and its variable costs continue to be $1.20 per unit, what will its cost-plus price be? Do you think Green Thumb will be able to sell its plants to garden centers at the cost-plus price? Why or why not?

Q44. Prepare an incremental analysis to show whether Safe Zone should drop the industrial systems product line.

Prepare contribution margin income statements to show Safe Zones total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives income numbers to your answer to Requirement 1.

Q46. What have you learned from the comparison in Requirement 2?

Diagram Smiths decision alternatives, using Exhibit 20-26 as a guide.

Identify the sunk cost. Is the sunk cost relevant to Smiths decision?

Q49. Should Smith sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives.

Nature Places owners want to earn a 11% return on the companys assets. What is Nature Places target full cost?

Q51. Given Nature Places current costs, will its owners be able to achieve their tar- get profit?

Assume Nature Place has identified ways to cut its variable costs to $1.25 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit?

Q53. Nature Place started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Monrovia Plants made this strategy work so Nature Place has decided to try it, too. Nature Place does not expect vol- ume to be affected, but it hopes to gain more control over pricing. If Nature Place has to spend $125,000 this year to advertise, and its variable costs continue to be $1.25 per unit, what will its cost-plus price be? Do you think Nature Place will be able to sell its plants to garden centers at the cost-plus price? Why or why not?

Q54. Prepare an incremental analysis to show whether Control One should drop the industrial systems product line.

Prepare contribution margin income statements to show Control Ones total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives income numbers to your answer to Requirement 1.

Q56. What have you learned from this comparison in Requirement 2?

Diagram Coles decision alternatives, using Exhibit 20-26 as a guide.

Identify the sunk cost. Is the sunk cost relevant to Coles decision?

Q59. Should Cole sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives.

Should Lawlor take the special contract?

Q61. What will Lawlors incremental profit be on the special contract?

Should Draper sell the software as is or develop it further?

Compute the total cost per mailbox per month of BKFin.coms current e-mail function.

Q64. Suppose Mail.com, a leading provider of Internet messaging outsourcing services, offers to host BKFin.coms e-mail function for $9 per mailbox per month. If BKFin.com outsources its e-mail to Mail.com, BKFin.com will still need the virus protection software, its computer hardware, and one information technology staff member, who would be responsible for maintaining virus protection, quarantining suspicious e-mail, and managing content (e.g., screening e-mail for objectionable content). Should CEO Wise accept Mail.coms offer?

Q65. Suppose for an additional $5 per mailbox per month, Mail.com will also provide virus protection, quarantine, and content-management services. Outsourcing these additional functions would mean that BKFin.com would not need either an e-mail information tech- nology staff member or the separate virus protection license. Should CEO Wise outsource these extra services to Mail.com?

Would outsourcing the payroll function increase or decrease Duck Associates operat- ing income?

Q67. Tan believes that outsourcing payroll would simplify her job, but she does not like the prospect of having to lay off Stock, who has become a close personal friend. She does not believe there is another position available for Stock at his current salary. Can you think of other factors that might support keeping Stock, rather than outsourcing payroll process- ing? How should each of the factors affect Tans decision if she wants to do what is best for Duck Associates and act ethically?

Q68. Although this case differs from fraud in the usual sense, describe the conflict of interest in this case. Who benefitted and who did not?

When making business decisions of this sort, some factors are quantitative and some are not. Discuss some of the non-quantitative factors related to this case. (Challenge)

Q70. Are the following items relevant or irrelevant in Menards decision to build a new plant that will manufacture his own products?

1. The unit sale prices of the countertops, cabinets, and picnic tables (the sale prices that

Menards charges its customers)

1. The prices outside suppliers would charge Menards for the three products, if Menards

decides to outsource the products rather than make them

1. The direct materials, direct labor, and variable overhead Menards would incur to manufacture the three product lines

2. John Menards salary

Q71. Determine whether Menards should make or outsource the countertops, cabinets, and picnic tables. In other words, what is the annual difference in cash flows if Menards decides to make rather than outsource each of these three products?

Q72. Write a memo giving your recommendation to John Menard. The memo should clearly state your recommendation, along with a brief summary of the reasons for your recommendation.