Weygandt, Managerial Accounting, 8e ASSIGNMENT RESOURCES Practice: Chapters 7 and 8

Exercise 7-4

Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into its fabrics to kill bacteria and odor on clothing while managing heat. Y-Go has become very popular in undergarments for sports activities. Operating at capacity, the company can produce 1,048,000 Y-Go undergarments a year. The per unit and the total costs for an individual garment when the company operates at full capacity are as follows.

Per Undergarment Total

Direct materials $2.08 $2,179,840

Direct labor $0.59 $618,320

Variable manufacturing overhead $1.02 $1,068,960

Fixed manufacturing overhead $1.45 $1,519,600

Variable selling expenses $0.33 $345,840

Totals$5.47 $5,732,560

The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 249,800 Y-Go undergarments for soldiers in extremely warm climates. The Army would pay the unit cost for direct materials, direct labor, and variable manufacturing overhead costs. In addition, the Army has agreed to pay an additional $1.10 per undergarment to cover all other costs and provide a profit. Presently, Klean Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Klean Fiber accepts the Army's offer, it will not incur any variable selling expenses related to this order.

Prepare incremental analysis for the Klean Fiber.(Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject Accept Net Income Increase

Order Order (Decrease)

Revenues $ $ $

Variable costs:

Direct materials$ $ $

Direct labor $ $

Variable overhead $ $

Total variable costs $ $

Net income$ $ $

Should Klean Fiber accept the Army's offer?

Klean Fiber shouldaccept reject the Army's offer?

Exercise 8-3 a1, b-c (Part Level Submission) (Video)

Leno Company makes swimsuits and sells these suits directly to retailers. Although Leno has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $100. Given its experience, Leno believes the All-Body suit would have the following manufacturing costs.

Direct materials$25

Direct labor $32

Manufacturing overhead $43

Total costs $100

(a1)

Assume that Leno uses cost-plus pricing, setting the selling price 20% above its costs. What would be the price charged for the All-Body swimsuit?

Selling price$ enter the selling price in dollars

Problem 8-4A a-b, d (Video)

Word Wizard is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Quick Press. The book lines and the printing operation each operate as a separate profit center. The printing operation earns revenue by printing books by authors under contract with the book lines owned by Word Wizard, as well as authors under contract with other companies. The printing operation bills out at $0.01 per page, and a typical book requires 390 page of print. A manager from Business Books, one of the Word Wizard's book lines, has approached the manager of the printing operation offering to pay $0.006 per page for 1,200 copies of a 390pg book. The book line pays outside printers $0.008 per page. The printing operation's variable cost per page is $0.004.

Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following situations.

Assume that the printing operation is booked solid for the next 2 years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division.(RoundTransfer priceto 2 decimal places, e.g. 0.18.)

Printing should be doneExternally or Internally?

Minimum transfer price$

Assume that the printing operation has available capacity.(RoundTransfer priceto 3 decimal places, e.g. 0.189.)

Printing should be doneExternally or Internally?

Minimum transfer price$

Calculate the change in contribution margin to each division, and to the company as a whole, if top management forces the printing operation to accept the $0.006 per page transfer price when it has no available capacity.

L/P to the printing operation $

L/P to the business books $

L/P to the company $