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75.
The Rapid 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?
76.
The Lamar Company manufactures wiring tools. The company is currently producing well
below its full capacity. The Boston Company has approached Lamar with an offer to buy
10,000 tools at $1.75 each. Lamar sells its tools wholesale for $1.85 each; the average cost
per unit is $1.83, of which $0.27 is fixed costs. If Lamar were to accept Boston's offer,
what would be the increase in Lamar's operating profits?
77.
The Young Company has gathered the following information for a unit of its most popular
product:
Direct materials
$12
Direct labor
6
Overhead (40% variable)
10
Cost to manufacture
28
Desired markup (50%)
14
Target selling price
$42
78.
The Young Company has gathered the following information for a unit of its most popular
product:
Direct materials
$12
Direct labor
6
Overhead (40% variable)
10
Cost to manufacture
28
Desired markup (50%)
14
Target selling price
$42
79.
The following information relates to the Jasmine Company for the upcoming year.
Amount
Per Unit
Sales
$8,000,000
$20.00
Cost of goods sold
6,400,000
16.00
Gross margin
1,600,000
4.00
Operating expenses
600,000
1.50
Operating profits
$1,000,000
$2.50
80.
The following information relates to the Jasmine Company for the upcoming year.
Amount
Per Unit
Sales
$8,000,000
$20.00
Cost of goods sold
6,400,000
16.00
Gross margin
1,600,000
4.00
Operating expenses
600,000
1.50
Operating profits
$1,000,000
$2.50
81.
The following information relates to a product produced by Orca Company:
Direct materials
$20
Direct labor
14
Variable overhead
12
Fixed overhead
16
Unit cost
$62
82.
The operations of Winston Corporation are divided into the Blink Division and the Blur
Division. Projections for the next year are as follows:
Blink
Division
Blur
Division
Total
Sales
$280,000
$168,000
$448,000
Variable costs
98,000
77,000
175,000
Contribution
margin
$182,000
$91,000
$273,000
Direct fixed costs
84,000
70,000
154,000
Segment margin
$98,000
$21,000
$119,000
Allocated common
costs
42,000
31,500
73,500
Operating income
(loss)
$56,000
($10,500)
$45,500
83.
The operations of Winston Corporation are divided into the Blink Division and the Blur
Division. Projections for the next year are as follows:
Blink
Division
Blur
Division
Total
Sales
$280,000
$168,000
$448,000
Variable costs
98,000
77,000
175,000
Contribution
margin
$182,000
$91,000
$273,000
Direct fixed costs
84,000
70,000
154,000
Segment margin
$98,000
$21,000
$119,000
Allocated common
costs
42,000
31,500
73,500
Operating income
(loss)
$56,000
($10,500)
$45,500
84.
85.
86.
Which of the following costs are not considered in a differential analysis for a make-or-
buy decision?
87.
88.
89.
90.
When there is a production constraint, a company should emphasize the products with:
4-76
91.
4-77
92.
The King Company has two divisions—North and South. The divisions have the following
revenues and expenses:
North
South
Sales
$900,000
$800,000
Variable expenses
450,000
300,000
Traceable fixed expenses
260,000
210,000
Allocated common corporate
expenses
240,000
190,000
Net operating income (loss)
($50,000)
$100,000
4-79
93.
94.
Item I51 is used in one of Policy Corporation's products. The company makes 18,000 units
of this Item each year. The company's Accounting Department reports the following costs
of producing the Item at this level of activity:
Per Unit
Direct materials
$1.20
Direct labor
$2.20
Variable manufacturing overhead
$3.30
Supervisor’s salary
$1.00
Depreciation of special equipment
$2.70
Allocated general overhead
$8.50
An outside supplier has offered to produce this Item and sell it to the company for $15.80
each. If this offer is accepted, the supervisor's salary and all of the variable costs,
including direct labor, can be avoided. The special equipment used to make the Item was
purchased many years ago and has no salvage value or other use. The allocated general
overhead represents fixed costs of the entire company. If the outside supplier's offer were
accepted, only $26,000 of these allocated general overhead costs would be avoided.
If management decides to buy Item I51 from the outside supplier rather than to continue
making the Item, what would be the annual impact on the company's overall net operating
income?
