63. Zurek Inc has 5,400 machine hours available each month. The following information on the
company’s three products is available:
The market demand is limited to 2,000 units of each of the three products. How many units of
each should Zurek produce and sell?
64. Zurek Inc has 5,400 machine hours available each month. The following information on the
company’s three products is available:
The market demand is limited to 2,000 units of each of the three products. What is the maximum
possible contribution margin that Zurek could make in any month?
65. Winton Inc has 12,000 machine hours available each month. The following information on
the company’s four products is available:
If market demand exceeds the available capacity, in what sequence should orders be filled to
maximize the company’s profits?
66. The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third
of Axle’s output is sold to an internal division of Becker; the remainder is sold to outside
customers. Axle’s estimated operating profit for the year is:
The internal division has an opportunity to purchase 10,000 axles of the same quality from an
outside supplier on a continuing basis. The Axle Division cannot sell any additional products to
outside customers. Should the Becker Company allow its internal division to purchase the axles
from the outside supplier at $13.00 per unit?
67. The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third
of Axle’s 30,000 unit output is sold to an internal division of Becker; the remainder is sold to
outside customers. Axles’ estimated operating profit for the year is:
The internal division has an opportunity to purchase 10,000 axles of the same quality from an
outside supplier on a continuing basis. The purchase price would be $13.00. If the Axle Division is
now operating at full capacity and can sell all its units to outside customers at the present selling
price, what is the differential cost to Becker of requiring that the axles be made internally and sold
to the internal division?
4-46
68. The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third
of Axle’s 30,000 unit output is sold to an internal division of Becker; the remainder is sold to
outside customers. Axles’ estimated operating profit for the year is:
The internal division has an opportunity to purchase 10,000 axles of the same quality from an
outside supplier on a continuing basis. The purchase price would be $13.00. If the Axle Division is
now operating at full capacity and can sell all its units to outside customers at the present selling
price, what is the minimum selling price that Axle should accept from the internal division?
69. The Axle Division of Becker Company produces axles for off-road sport vehicles. One-third
of Axle’s output is sold to an internal division of Becker; the remainder is sold to outside
customers. Axle’s estimated operating profit for the year is:
The internal division has an opportunity to purchase 10,000 axles of the same quality from an
outside supplier on a continuing basis. The Axle Division cannot sell any additional products to
outside customers. What is the minimum selling price that Axle should accept from the internal
division?
70. The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of
$200,000.
The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit. If
Bremmer accepts the offer, $8 per unit of the fixed overhead would be saved. In addition, some of
Bremmer’s leased facilities could be vacated, reducing lease payments by $30,000 per year. What
are the relevant costs for the “make” alternative?
71. The Bremmer Company produces 5,000 units of item ZQ98 annually at a total cost of
$200,000.
The Daisy Company has offered to supply all 5,000 units of ZQ98 per year for $35 per unit. If
Bremmer accepts the offer, $8 per unit of the fixed overhead would be saved. In addition, some of
Bremmer’s leased facilities could be vacated, reducing lease payments by $30,000 per year. At
what price would Bremmer be indifferent to Daisy’s offer?
72. The Speedy Delivery Service is considering the expansion of its business into afternoon
retail delivery service. This would require an additional $25,000 in labor costs per month.
Company-owned vehicles now used to make morning deliveries to local manufacturers could be
used in the afternoons to make retail deliveries. However, it is estimated that an additional
$10,000 would be required per month for gas, oil, and maintenance. It is further estimated that the
retail delivery use of the trucks would be allocated 45% of the existing $13,000 fixed vehicle costs.
What is the differential delivery cost per month for expanding into the retail delivery market?
73. The Lemaire Company manufactures wiring tools. The company is currently producing
well below its full capacity. The Boisvert Company has approached Lemaire with an offer to buy
10,000 tools at $1.75 each. Lemaire sells its tools wholesale for $1.85 each; the average cost per
unit is $1.83, of which $0.27 is fixed costs. If Lemaire were to accept Boisvert’s offer, what would
be the increase in Lemaire’s operating profits?
74. The Buchanan Company has gathered the following information for a unit of its most
popular product:
The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units
at a price of $32 per unit. This special order would not disturb regular sales. Special packaging
and other selling expenses would be an additional -$0.50 per unit for the special order. If the
special order is accepted, Buchanan’s operating profits will increase by:
75. The Buchanan Company has gathered the following information for a unit of its most
popular product:
The above cost information is based on 10,000 units. A distributor has offered to buy 2,000 units
at a price of $32 per unit. The distributor claims this special order would not disturb regular sales
at $42. Special packaging and other selling expenses would be an additional $0.50 per unit for the
special order. How many units of regular sales could be lost before this contract is not profitable?
76. The following information relates to the Jax Company for the upcoming year.
The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating
expenses include $200,000 of fixed marketing expenses. A special order offering to buy 50,000
units for $15.00 per unit has been made to Jax. Fortunately, there will be no additional operating
expenses associated with the order and Jax has sufficient capacity to handle the order. How much
will operating profits increase if Jax accepts the special order?
77. The following information relates to the Jax Company for the upcoming year.
The cost of goods sold includes $2,400,000 of fixed manufacturing overhead; the operating
expenses include $200,000 of fixed marketing expenses. A special order offering to buy 50,000
units for $15.00 per unit has been made to Jax. Fortunately, there will be no additional operating
expenses associated with the order; however, Jax is operating at full capacity. How much will
operating profits increase if Jax accepts the special order?
78. The following information relates to a product produced by Ashland Company:
Fixed selling costs are $1,000,000 per year. Although production capacity is 500,000 units per
year, Ashland expects to produce only 400,000 units next year. The product normally sells for $80
each. A customer has offered to buy 60,000 units for $60 each. The customer will pay the
transportation charge on the units purchased. If Ashland accepts the special order, the effect on
income would be a:
79. The operations of Gadwell Corporation are divided into the Blink Division and the Blur
Division. Projections for the next year are as follows:
Operating income for Gadwell Corporation as a whole if the Blur Division were dropped would be:
80. The operations of Gadwell Corporation are divided into the Blink Division and the Blur
Division. Projections for the next year are as follows:
If the Blur Division were dropped, Blink Division’s sales would increase by 30%. If this happened,
the operating income for Gadwell Corporation as a whole would be:
4-59
81. Which of the following statements regarding differential costs is (are) true?
(A) The full cost fallacy occurs when a decision-maker includes fixed manufacturing overhead in
the product’s cost.
(B) When deciding whether or not to accept a special order, a decision-maker should focus on
differential costs instead of full costs.
82. Which of the following statements regarding special orders is (are) false?
(A) The primary decision for special orders is determining whether the differential revenue is
greater than the differential costs associated with the order.
(B) The differential analysis approach to pricing for special orders will always lead to underpricing
in the long-run because fixed costs are not included in the analysis.
83. Which of the following costs are not considered in a differential analysis for a make–or–
buy decision?