Wild Ride manufactures snowboards. Its cost of making 1,880 bindings is as follows:

Costs

Direct materials. . . . . . . . . . . . . . . . . . . .	$18,250
Direct labor. . . . . . . . . . . . . . . . . . . . . . . .	3,300
Variable manufacturing overhead. . . . .	2,100
Fixed manufacturing overhead. . . . . . .	6,900
Total manufacturing costs. . . . . . . . . . .	$30,550
Cost per pair ($30,550 1,880). . . . . . .	$16.25

Suppose an outside supplier will sell bindings to Wild Ride for $18 each. Wild Ride will pay $2.00 per unit to transport the bindings to its manufacturing plant, where it will add its own logo at a cost of $0.20 per binding.

Requirements:

Wild Ride's accountants predict that purchasing the bindings from the outside supplier will enable the company to avoid $2,000 of fixed overhead. Prepare an analysis to show whether the company should make or buy the bindings. (Enter a "0" for any zero balances. Round any per unit amounts to the nearest cent and your final answers to the nearest whole dollar. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy.)

Question 1:

Incremental Analysis Outsourcing Decision	Make Bindings	Buy (Outsource) Bindings	Difference
Variable Costs
Plus: Fixed Costs
Total cost of 1,880 bindings

B. The facilities freed by purchasing bindings from the outside supplier can be used to manufacture another product that will contribute $3,400 to profit. Total fixed costs will be the same as if Wild Ride had produced the bindings. Show which alternative makes the best use of Wild Ride's facilities: (a) make bindings, (b) buy bindings and leave facilities idle, or (c) buy bindings and make another product. (Enter a "0" for any zero balances. Round any per unit amounts to the nearest cent and your final answers to the nearest whole dollar.)

		Buy (Outsource) Bindings
Incremental Analysis Outsourcing Decision	(a) Make Binding	(b) Leave Facilities Idle	(c) Make Another Product
Variable Costs
Plus: Fixed Costs
Total cost of 1,880 bindings
Less: Profit from another product
Net cost

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Smith Chemical has spentm$244,000mto refinem 72,000 gallons of acetone, which can be sold for $2.30 a gallon. Alternatively, Smith Chemical can process the acetone further. This processing will yield a total of 58,000 gallons of lacquer thinner that can be sold for $3.30 a gallon. The additional processing will cost $0.75 per gallon of lacquer thinner. To sell the lacquer thinner, Smith Chemical must pay shipping of $0.19 a gallon and administrative expenses of $0.10 a gallon on the thinner.

Identify the sunk cost. Is the sunk cost relevant to Smith's decision? Why or why not?

The		is a sunk cost that		differ between alternatives of selling as is or processing
further. Consequently, this sunk cost of		is		to the sell or process further decision.

Should Smith sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives. (Enter a "0" for any zero amounts. Use a minus sign or parentheses in the Difference column if the Sell As Is amount exceeds the Process Further amount.)

			Sell As Is	Process Further	Difference
Less:
Net benefit to operating income per batch

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Members of the board of directors of 123 Security have received the following operating income data for the year just ended:

Product Line Contribution Margin Income Statement

123 Security
Product Line Contribution Margin Income Statement
For the Year
	Product lines
	Industrial Systems	Household Systems	Company Total
Sales revenue	$330,000	$340,000	$670,000
Less cost of goods sold:
Variable	38,000	48,000	86,000
Fixed	260,000	68,000	328,000
Gross profit	$32,000	$224,000	$256,000
Less marketing and administrative expenses:
Variable	69,000	73,000	142,000
Fixed	44,000	20,000	64,000
Operating income (loss)	$(81,000)	$131,000	$50,000

Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should discontinue the line. Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by $77,000 and decrease fixed marketing and administrative expenses by $13,000.

1.	Prepare an incremental analysis to show whether 123 Security should discontinue the industrial systems product line.
2.	Prepare contribution margin income statements to show 123 Security's 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. What have you learned from this comparison?

Prepare an incremental analysis to show whether 123 Security should discontinue the industrial systems product line.

Incremental Analysis for Discontinuation Decision	Total
Contribution margin lost if Industrial Systems is discontinued
Less: Fixed cost savings if Industrial Systems is discontinued
Operating income		if Industrial Systems is discontinued

Prepare contribution margin income statements to show 123 Security's 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. What have you learned from this comparison?

Begin by preparing the statements with and without the industrial systems line, then prepare the contribution margin income statement showing the decrease if the industrial systems line is discontinued. (Use parentheses or a minus sign for an operating loss.)

123 Security
Total Analysis of Discontinuing a Product Line
	Totals With	Totals Without
	Industrial Systems	Industrial Systems
Sales revenue
Variable expenses:
Cost of goods sold
Marketing and administrative expense
Total variable expenses
Contribution margin
Fixed expenses:
Cost of goods sold
Marketing and administrative expense
Total fixed expenses
Operating income (loss)

Difference