115. If Dunford has a limit of 30,000 machine hours but no limit on units sold or direct labor
hours, then the ranking of the products from the most profitable to the least profitable use of the
constrained resource is:
116. How much profit (loss) does the company make by processing one batch of sugar beets
into the end products industrial fiber and refined sugar?
117. How much profit (loss) does the company make by processing the intermediate product
beet juice into refined sugar rather than selling it as is?
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118. Which of the intermediate products should be processed further?
Resendes Refiners, Inc., processes sugar cane that it purchases from farmers. Sugar cane
is processed in batches. A batch of sugar cane costs $48 to buy from farmers and $16 to crush in
the company’s plant. Two intermediate products, cane fiber and cane juice, emerge from the
crushing process. The cane fiber can be sold as is for $24 or processed further for $17 to make
the end product industrial fiber that is sold for $38. The cane juice can be sold as is for $34 or
processed further for $23 to make the end product molasses that is sold for $76.
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119. How much profit (loss) does the company make by processing one batch of sugar cane
into the end products industrial fiber and molasses?
120. How much profit (loss) does the company make by processing the intermediate product
cane juice into molasses rather than selling it as is?
121. Which of the intermediate products should be processed further?
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Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed into
molasses.
Dodrill 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:
122. What is the net monetary advantage (disadvantage) of processing Product X beyond the
split-off point?
123. What is the net monetary advantage (disadvantage) of processing Product Y beyond the
split-off point?
124. What is the minimum amount the company should accept for Product X if it is to be sold
at the split-off point?
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125. If N is processed further and then sold, rather than being sold at the split-off point, the
change in monthly operating income would be a:
126. What would the selling price per unit of product N need to be after further processing in
order for Payne Company to be economically indifferent between selling N at the split-off point or
processing N further?
Profit from further processing
The company would be indifferent between selling Product N at the split-off point or processing
Product N further when the sales value at the split-off point equals the incremental profit that
the company could earn by processing further.
Sales value at split-off point = Final sales value after further processing – Cost of further
processing
$3.20 = Final sales value after further processing – $2.50
Final sales value after further processing = $3.20 + $2.50 = $5.70
127. Marcell Corporation is considering two alternatives that are code-named M and N. Costs
associated with the alternatives are listed below:
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
128. Costs associated with two alternatives, code-named Q and R, being considered by
Corniel Corporation are listed below:
Required:
a. Which costs are relevant and which are not relevant in the choice between these two
alternatives?
b. What is the differential cost between the two alternatives?
129. The management of Therriault Corporation is considering dropping product U51Y. Data
from the company’s accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $280,000 of the fixed manufacturing expenses
and $140,000 of the fixed selling and administrative expenses are avoidable if product U51Y is
discontinued.
Required:
What would be the effect on the company’s overall net operating income if product U51Y were
dropped? Should the product be dropped? Show your work!
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130. Nutall Corporation is considering dropping product N28X. Data from the company’s
accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $199,000 of the fixed manufacturing expenses
and $114,000 of the fixed selling and administrative expenses are avoidable if product N28X is
discontinued.
Required:
a. According to the company’s accounting system, what is the net operating income earned by
product N28X? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping product
N28X? Should the product be dropped? Show your work!
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131. The management of Rodarmel Corporation is considering dropping product G91Q. Data
from the company’s accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company’s accounting
system. Further investigation has revealed that $57,000 of the fixed manufacturing expenses and
$40,000 of the fixed selling and administrative expenses are avoidable if product G91Q is
discontinued.
Required:
a. What is the net operating income earned by product G91Q according to the company’s
accounting system? Show your work!
b. What would be the effect on the company’s overall net operating income of dropping product
G91Q? Should the product be dropped? Show your work!
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132. Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-
line income data:
The following additional information is available:
* The factory rent of $1,500 assigned to Product C is avoidable if the product were dropped.
* The company’s total depreciation would not be affected by dropping C.
* Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.
* All supervisors’ salaries are avoidable.
* If Product C is discontinued, the maintenance department will be able to reduce monthly
expenses from $3,000 to $2,000.
* Elimination of Product C will make it possible to cut two persons from the administrative staff;
their combined salaries total $3,000.
Required:
Prepare an analysis showing whether Product C should be eliminated.
133. The Hayes Company manufactures and sells several products, one of which is called a
slip differential. The company normally sells 30,000 units of the slip differential each month. At
this activity level, unit costs are:
An outside supplier has offered to produce the slip differentials for the Hayes Company, and to
ship them directly to the Hayes Company’s customers. This arrangement would permit the Hayes
Company to reduce its variable selling expenses by one third (due to elimination of freight costs).
The facilities now being used to produce the slip differentials would be idle and fixed
manufacturing overhead would continue at 60 percent of its present level. The total fixed selling
expenses of the company would be unaffected by this decision.
Required:
What is the maximum acceptable price quotation for the slip differentials from the outside
supplier?
134. Bady Inc. makes a range of products. The company’s predetermined overhead rate is $14
per direct labor-hour, which was calculated using the following budgeted data:
Component M3 is used in one of the company’s products. The unit cost of the component
according to the company’s cost accounting system is determined as follows:
An outside supplier has offered to supply component M3 for $108 each. The outside supplier is
known for quality and reliability. Assume that direct labor is a variable cost, variable
manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing
overhead would not be affected by this decision. Bady chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive? Why?
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135. Kramer Company makes 4,000 units per year of a part called an axial tap for use in one of
its products. Data concerning the unit production costs of the axial tap follow:
An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer
Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing
overhead costs could be avoided. Assume that direct labor is a variable cost.
Required:
a. Assume Kramer Company has no alternative use for the facilities presently devoted to
production of the axial taps. If the outside supplier offers to sell the axial taps for $65 each,
should Kramer Company accept the offer? Fully support your answer with appropriate
calculations.
b. Assume that Kramer Company could use the facilities presently devoted to production of the
axial taps to expand production of another product that would yield an additional contribution
margin of $80,000 annually. What is the maximum price Kramer Company should be willing to pay
the outside supplier for axial taps?
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136. Masse Corporation uses part G18 in one of its products. The company’s Accounting
Department reports the following costs of producing the 16,000 units of the part that are needed
every year.
An outside supplier has offered to make the part and sell it to the company for $28.00 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 part 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 $22,000 of these allocated
general overhead costs would be avoided. In addition, the space used to produce part G18 could
be used to make more of one of the company’s other products, generating an additional segment
margin of $22,000 per year for that product.
Required:
a. Prepare a report that shows the effect on the company’s total net operating income of buying
part G18 from the supplier rather than continuing to make it inside the company.
b. Which alternative should the company choose?