191) A customer has asked Lalka Corporation to supply 3,000 units of product H60, with some
modifications, for $34.70 each. The normal selling price of this product is $46.35 each. The
normal unit product cost of product H60 is computed as follows:
Direct materials
$
14.70
Direct labor
1.30
Variable manufacturing overhead
7.00
Fixed manufacturing overhead
7.90
Unit product cost
$
30.90
Direct labor is a variable cost. The special order would have no effect on the company’s total
fixed manufacturing overhead costs. The customer would like some modifications made to
product H60 that would increase the variable costs by $3.80 per unit and that would require a
one-time investment of $24,000 in special molds that would have no salvage value. This special
order would have no effect on the company’s other sales. The company has ample spare capacity
for producing the special order.
Required:
Determine the financial advantage or disadvantage of accepting the special order.
Incremental revenue (3,000 units × $34.70 per unit)
$
104,100
Less incremental costs:
Direct materials (3,000 units × $14.70 per unit)
44,100
Direct labor (3,000 units × $1.30 per unit)
Variable manufacturing overhead (3,000 units × $7.00 per unit)
21,000
Modifications (3,000 units × $3.80 per unit)
11,400
Special molds
24,000
Total incremental cost
104,400
Financial advantage (disadvantage)
$
192) Kneller Co. manufactures and sells medals for winners of athletic and other events. Its
manufacturing plant has the capacity to produce 12,000 medals each month; current monthly
production is 9,600 medals. The company normally charges $99 per medal. Cost data for the
current level of production are shown below:
$480,000
$153,600
$24,960
$144,000
$78,720
The company has just received a special one-time order for 500 medals at $89 each. For this
particular order, no variable selling and administrative costs would be incurred. This order would
also have no effect on fixed costs. Assume that direct labor is a variable cost.
Required:
Should the company accept this special order? Why?
Direct materials
Direct labor
Total
Current monthly production
Average direct materials and direct labor cost per unit
181
193) Garson, Inc. produces three products. Data concerning the selling prices and unit costs of
the three products appear below:
Product
F
G
H
Selling price
$
50
$
80
$
70
Variable costs
$
40
$
50
$
55
Fixed costs
$
15
$
20
$
12
Milling machine time (minutes)
4
2
5
Fixed costs are applied to the products on the basis of direct labor hours.
Demand for the three products exceeds the company’s productive capacity. The milling machine
is the constraint, with only 2,400 minutes of milling machine time available this week.
Required:
a. Given the milling machine constraint, which product should be emphasized?
b. Assuming that there is still unfilled demand for the product that the company should
emphasize in part (a) above, up to how much should the company be willing to pay for an
additional hour of milling machine time?
194) Brissett Corporation makes three products that use the current constraint, which is a
particular type of machine. Data concerning those products appear below:
GK
LQ
XK
Selling price per unit
$
119.51
$
226.07
$
228.96
Variable cost per unit
$
89.87
$
176.86
$
178.92
Time on the constraint (minutes)
1.90
3.70
3.60
Required:
a. Rank the products in order of their current profitability from the most profitable to the least
profitable. In other words, rank the products in the order in which they should be emphasized.
Show your work!
b. Assume that sufficient constraint time is available to satisfy demand for all but the least
profitable product. Up to how much should the company be willing to pay to acquire more of the
constrained resource?
GK
LQ
XK
Selling price per unit
$
119.51
$
226.07
$
228.96
Variable cost per unit
89.87
176.86
178.92
Contribution margin per unit
$
29.64
$
$
50.04
Time on the constraint (minutes)
resource
15.60
13.90
Ranking
184
195) Glover Company makes three products in a single facility. These products have the
following unit product costs:
Product
A
B
C
Direct materials
$
15.80
$
11.00
$
14.10
Direct labor
19.10
17.20
20.30
Variable manufacturing overhead
2.60
3.10
3.30
Fixed manufacturing overhead
21.60
24.10
31.30
Unit product cost
$
59.10
$
55.40
$
69.00
Additional data concerning these products are listed below.
Product
A
B
C
Mixing minutes per unit
3.30
2.60
3.10
Selling price per unit
$
74.30
$
66.40
$
81.00
Variable selling cost per unit
$
2.80
$
2.30
$
1.90
Monthly demand in units
2,000
1,000
1,000
The mixing machines are potentially the constraint in the production facility. A total of 10,900
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all three
products?
b. How many units of each product should be produced to maximize net operating income?
(Round off to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of mixing
machine time if the company has made the best use of the existing mixing machine capacity?
(Round off to the nearest whole cent.)
186
196) Holton Company makes three products in a single facility. Data concerning these products
follow:
Product
A
B
C
Selling price per unit
$
76.10
$
72.70
$
77.10
Direct materials
$
33.10
$
40.60
$
46.40
Direct labor
$
24.00
$
13.10
$
7.20
Variable manufacturing overhead
$
4.60
$
4.40
$
3.30
Variable selling cost per unit
$
1.60
$
3.20
$
2.00
Mixing minutes per unit
2.80
1.90
2.60
Monthly demand in units
3,000
1,000
2,000
The mixing machines are potentially the constraint in the production facility. A total of 14,700
minutes are available per month on these machines.
Direct labor is a variable cost in this company.
Required:
a. How many minutes of mixing machine time would be required to satisfy demand for all three
products?
b. How much of each product should be produced to maximize net operating income? (Round off
to the nearest whole unit.)
c. Up to how much should the company be willing to pay for one additional hour of mixing
machine time if the company has made the best use of the existing mixing machine capacity?
(Round off to the nearest whole cent.)
197) The constraint at Dreyfus Inc. is an expensive milling machine. The three products listed
below use this constrained resource.
VY
QX
AM
Selling price per unit
$
78.65
$
421.59
$
145.92
Variable cost per unit
$
62.40
$
331.20
$
113.28
Time on the constraint (minutes)
1.30
6.90
2.40
Required:
a. Rank the products in order of their current profitability from the most profitable to the least
profitable. In other words, rank the products in the order in which they should be emphasized.
b. Assume that sufficient constraint time is available to satisfy demand for all but the least
profitable product. Up to how much should the company be willing to pay to acquire more of the
constrained resource?
VY
QX
AM
Selling price per unit
$
78.65
$
421.59
$
145.92
Variable cost per unit
62.40
331.20
113.28
Contribution margin per unit
$
16.25
$
$
Time on the constraint (minutes)
1.30
6.90
2.40
Ranking
198) Farrugia Corporation produces two intermediate products, A and B, from a common input.
Intermediate product A can be further processed into Product X. Intermediate product B can be
further processed into Product Y. The common input is purchased in batches that cost $36 each
and the cost of processing a batch to produce intermediate products A and B is $15. Intermediate
product A can be sold as is for $21 or processed further for $14 to make Product X that is sold
for $32. Intermediate product B can be sold as is for $44 or processed further for $28 to make
Product Y that is sold for $64.
Required:
a. Assuming that no other costs are involved in processing the common input or in selling
products, what is the profit (loss) from processing one batch of the common input into the
products X and Y? Show your work!
b. Should each of the intermediate products, A and B, be sold as is or processed further? Explain.
199) Prosner Corp. manufactures three products from a common input in a joint processing
operation. Joint processing costs up to the split-off point total $500,000 per year. The company
allocates these costs to the joint products on the basis of their total sales value at the split-off
point.
Each product may be sold at the split-off point or processed further. The additional processing
costs and sales value after further processing for each product (on an annual basis) are:
Sales Value at Split-
Off
Further
Processing
Costs
Sales Value After
Further Processing
Product D
$
300,000
$
125,000
$
534,000
Product F
$
275,000
$
210,000
$
450,000
Product G
$
195,000
$
135,000
$
360,000
Required:
Which product or products should be sold at the split-off point, and which product or products
should be processed further?
Product D
Product G
Sales value after further processing
$
534,000
$
450,000
$
360,000
Sales value at split-off
300,000
275,000
195,000
Incremental revenue
234,000
175,000
165,000
Further processing costs
125,000
210,000
135,000
from further processing
$
109,000
$
(35,000
)
$
200) Swagger Corporation purchases potatoes from farmers. The potatoes are then peeled,
producing two intermediate products—peels and depeeled spuds. The peels can then be
processed further to make a cocktail of organic nutrients. And the depeeled spuds can be
processed further to make frozen french fries. A batch of potatoes costs $63 to buy from farmers
and $12 to peel in the company’s plant. The peels produced from a batch can be sold as is for
animal feed for $29 or processed further for $15 to make the cocktail of nutrients that are sold for
$41. The depeeled spuds can be sold as is for $40 or processed further for $22 to make frozen
french fries that are sold for $77.
Required:
a. Assuming that no other costs are involved in processing potatoes or in selling products, how
much money does the company make from processing one batch of potatoes into the cocktail of
organic nutrients and frozen french fries? Show your work!
b. Should each of the intermediate products, peels and depeeled spuds, be sold as is or processed
further into an end product? Explain.
201) Bowen Company produces products P, Q, and R from a joint production process. Each
product may be sold at the split-off point or be processed further. Joint production costs of
$81,000 per year are allocated to the products based on the relative number of units produced.
Data for Bowen’s operations for the current year are as follows:
Units
Produced
Allocated Joint
Production Cost
Sales Value at Split-
off
Product P
4,000
$
28,000
$
38,000
Product Q
7,000
$
49,000
$
47,000
Product R
2,000
$
14,000
$
16,000
Product P can be processed beyond the split-off point for an additional cost of $10,000 and can
then be sold for $50,000. Product Q can be processed beyond the split-off point for an additional
cost of $35,000 and can then be sold for $65,000. Product R can be processed beyond the split-
off point for an additional cost of $6,000 and can then be sold for $25,000.
Required:
Which products should be processed beyond the split-off point?
Sales value after further processing
50,000
$
25,000
Sales value at split-off
38,000
16,000
Added sales value from processing
12,000
9,000
Added processing costs
10,000
6,000
from further processing
2,000
$
(17,000
)
3,000
202) Benjamin Company produces products C, J, and R from a joint production process. Each
product may be sold at the split-off point or processed further. Joint production costs of $95,000
per year are allocated to the products based on the relative number of units produced. Data for
Benjamin’s operations for last year follow:
Units
Produced
Sales Values
at Split-Off
Sales Values
If Processed
Further
Costs of
Processing
Further
Product C
6,000
$75,000
$100,000
$20,000
Product J
9,000
$70,000
$115,000
$36,000
Product R
4,000
$46,500
$55,000
$10,000
Required:
Which products should be processed beyond the split-off point?
Product C
Sales value after further processing
Sales value after split-off
Added sales value from processing
Added processing costs
further processing
$(1,500)
203) 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 X if it is to be sold at the
split-off point?
d. What is the minimum amount the company should accept for Product Y if it is to be sold at the
split-off point?
Product Y
Sales value after further processing
47,500
$
40,800
Costs of further processing
15,900
17,400
Benefit of further processing
31,600
23,400
Less: Sales value at split-off point
32,000
22,000
further processing
$