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119. The following three situations are given for Gioulis Architects:
I.
Gioulis Architects employs 10 architects who can supply a capacity of 18,000 billable hours per year. The costs
related to these 10 architects amounts to $900,000 or $50 per hour. Last year, the firm billed 17,800 hours. Next year,
the firm estimates billing hours to take a slight downturn to 17,000 hours. However, Gioulis plans to retain all 10
architects.
II.
Gioulis Architects also employs surveyors on a contract basis. Last year, Gioulis contracted with 8 surveyors to
provide surveys for existing projects. Due to the expected downturn for next year, Gioulis will only contract services
of 7 surveyors as needed.
III.
Gioulis currently leases space in a building at the cost of $36,000 per year. They are outgrowing their space and
contemplating a decision to design and build their own building at a cost of $250,000. The new building would have
space for at least 18 architects.
Identify which resource category relates to each situation under the activity resource usage model and explain your choice.
120. How is understanding of committed resources and flexible resources important to the activity resource
usage model? How does this relate to relevance?
121. Senior Company currently buys 35,000 units of a part used to manufacture its product at $40 per unit.
Recently the supplier informed Senior Company that a 20 percent increase will take effect next year. Senior has
some additional space and could produce the units for the following per-unit costs (based on 35,000 units):
Direct materials
$16
Direct labor
12
Variable overhead
12
Fixed overhead
10
Total
$50
If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000
per year if the parts are purchased externally.
Required:
Should Senior Company buy the part externally or make it internally?
122. Mystical Corporation manufactures a single product with the following unit costs for 5,000 units:
Direct materials
$ 60
Direct labor
30
Factory overhead (40% variable)
90
Selling expenses (60% variable)
30
Administrative expenses (20% variable)
15
Total per unit
$225
Recently, a company approached Mystical Corporation about buying 1,000 units for $225. Currently, the models are sold to dealers for $412.50.
Mystical's capacity is sufficient to produce the extra 1,000 units. No additional selling expenses would be incurred on the special order.
Required:
a.
What is the profit earned by Mystical Corporation on the original 5,000 units?
b.
Should Mystical accept the special order if its goal is to maximize short-run profits? How much will income be affected?
c.
Determine the minimum price Mystical would want to receive in order to increase profits by $7,500 on the special order.
d.
When making a special order decision, what qualitative aspects of the decision should Mystical Corporation consider?
123. Mortimer Company manufactures three joint products: X, Y, and Z. The cost of the joint process is
$30,000. Information about the three products follows:
X
Y
Z
Anticipated production
5,600 lbs.
10,000 lbs.
2,500 lbs.
Selling price/lb. at split-off
$2.00
$1.00
$3.00
Additional processing costs/lb.
after split-off (all variable)
$1.50
$1.25
$.75
Selling price/lb. after
further processing
$2.50
$3.75
$6.25
Allocated joint costs
$12,000
$10,500
$7,500
Required:
a.
Determine whether each product should be sold at split-off or processed further. Show all supporting calculations in good form.
b.
Determine the firm's income if the firm processed all three products beyond split-off.
124. Akaramasa, Inc., uses a joint process to produce Products W, X, Y, Z. Each product may be sold at its
split-off point or processed further. Additional processing costs of specific products are entirely variable. Joint
processing costs for a single batch of joint products are $200,000. Other relevant data are as follows:
Sales Value
Additional
Sales Value of
Product
at Split-off
Processing Costs
Final Product
W
$ 40,000
$24,000
$ 70,000
X
16,000
10,000
20,000
Y
20,000
10,000
48,000
Z
24,000
16,000
36,000
$100,000
$60,000
$174,000
Required:
a.
Determine which products should be processed further.
b.
How will processing each product further affect profits?
125. The operations of Mouser Corporation are divided into the Bolt Division and the Nuts Division.
Projections for the next year are as follows:
Bolt
Nuts
Division
Division
Total
Sales
$60,000
$ 40,000
$100,000
Variable costs
20,000
15,000
35,000
Contribution margin
$40,000
$ 25,000
$ 65,000
Direct fixed costs
12,500
30,000
42,500
Segment margin
$27,500
$ (5,000)
$ 22,500
Allocated common costs
10,000
7,500
17,500
Operating income (loss)
$17,500
$(12,500)
$ 5,000
Required:
a.
Determine operating income for Mouser Corporation as a whole if the Nuts Division is dropped.
b.
Should the Nuts Division be eliminated?
126. Bollinger Company's 2014 income statement is as follows:
Sales (5,000 units ´ $17)
$85,000
Less variable expenses:
Cost of goods sold:
Direct materials
$15,000
Direct labor
12,000
Variable factory overhead
15,000
Selling and administrative
2,500
44,500
Contribution margin
$40,500
Less fixed expenses:
Factory overhead
$10,000
Selling and administrative
15,000
25,000
Net income (loss)
$15,500
In an attempt to improve the company's profit performance, management is considering a number of alternative actions.
Required:
Determine the effect of each of the following on monthly profit. Each situation is to be evaluated independently of all the others.
a.
Purchasing automated assembly equipment. This action should reduce direct labor costs by 40 percent. It also will increase variable
overhead costs by 10 percent and fixed factory overhead by $2,500.
b.
Reducing the unit selling price by $2 per unit. This should increase the monthly sales by 5,000 units. Fixed factory overhead will increase
by $1,500.
c.
Increase fixed selling and administrative expenses by $1,000 for advertising costs. The number of units sold will increase to 8,000 units.
127. The management of Villanueva Industries has been evaluating whether the company should continue
manufacturing a component or buy it from an outside supplier. A $100 cost per component was determined as
follows:
Direct materials
$ 15
Direct labor
40
Variable manufacturing overhead
10
Fixed manufacturing overhead
35
Total
$100
Villanueva Industries uses 4,000 components per year. After Splendor, Inc., submitted a bid of $80 per component, some members of management
felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Splendor,
Inc., Villanueva's unused production facilities could be leased to another company for $50,000 per year.
Required:
a.
Determine the maximum amount per unit Villanueva should pay an outside supplier.
b.
Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.
c.
Assume the company could eliminate production supervisors with salaries totaling $30,000 if the component is purchased from an outside
supplier. Indicate if the company should make or buy the component and the total dollar difference in favor of that alternative.
128. Campbell Company has an annual capacity of 18,000 units. Budgeted operating results for 2014 are as
follows:
Revenues (16,000 units @ $60)
$960,000
Variable costs:
Manufacturing
$384,000
Selling
128,000
512,000
Contribution margin
$448,000
Fixed costs:
Manufacturing
$160,000
Selling and administrative
120,000
280,000
Operating income
$168,000
A foreign wholesaler wants to buy 1,000 units at a price of $40 per unit. All fixed costs would remain within the relevant range. Variable selling
costs on the special order would be the same as variable selling costs for regular orders.
Required:
a.
Determine the effect on operating income if the company produces the special order.
b.
Should the company produce the special order?
c.
Determine operating income if the customer had wanted a special order of 3,000 units and the company produced the special order.
d.
Should the company produce the 3,000-unit special order?
e.
Discuss any nonquantitative factors the company might want to consider when making the decision.
129. Boniatillo Corporation, which produces one product, had the following income statement for a recent
month:
Boniatillo Corporation
Income Statement
For the Month of March 2014
Sales
$30,000
Cost of goods sold
27,000
Gross profit
$ 3,000
Selling and administrative
2,500
Net income
$ 500
There were no beginning or ending inventories of work-in-process or finished goods. Boniatillo's manufacturing costs were as follows:
Direct materials (1,200 units ´ $5)
$ 6,000
Direct labor (1,200 units ´ $8)
9,600
Variable overhead (1,200 units ´ $4.50)
5,400
Fixed overhead
6,000
Total
$27,000
Average cost per unit
$ 22.50
Selling and administrative expenses are all fixed.
Boniatillo has just received a special order from a firm in China to purchase 900 units at $20 each. The order will not affect the selling price to
regular customers.
Required:
a.
Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming
Boniatillo has excess capacity.
b.
Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Boniatillo does not have excess
capacity.
