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a. Sell to
Mail-Order Convert Incremental
Firm to New Model Analysis
25 Minutes, Medium
PROBLEM 21.5A
LOUIE OPTICS
PROBLEM 21.6
A
SILENT SENTRY
a. Incremental benefit of each option, in total and on a per-unit basis:
Repair Repackage Sell to
and Sell and Sell Foreign Buyer
b.
Based solely on this analysis, Silent Sentry should sell the detectors to the foreign buyer.
25 Minutes, Medium
Note: The unit costs given in the problem are not relevant because they are sunk costs.
There are several nonfinancial issues that management should consider:
PROBLEM 21.7
A
KELP COMPAN
Y
a.
Sea Tea Sea Paste Sea Powder
Sales value if sold at the split-off point 60,000$ 80,000$ 70,000$
b. Minimum price per pound needed to sell Sea Paste at the split-off point:
Incremental proceeds if processed further ($160,000 - $50,000) 110,000$
Sales value at split-off point 80,000
There is an incremental benefit associated with the further processing of Sea Paste and Sea
Powder, as shown above.
25 Minutes, Medium
PROBLEM 21.8
A
PAY OFF OR PAY UP
?
•
b.
a. The incremental analysis is deficient in numerous respects.
Ladies and gentlemen of the Board, I am addressing you today on a most important matter. It
costs.
Related to this issue, an investigative reporter has threatened to expose our past waste-
disposal procedures, which could result in very large fines and, perhaps, a widespread boycott
of our products. She has offered to keep silent on this issue for a consulting fee of $1 million
per year.
35 Minutes, Strong
The first option is not a viable alternative. It is illegal and unethical, and bribing this
reporter would not eliminate the costs shown in the second option. At best, it would only
This “consulting fee” is nothing more than a bribe, and I have already told this reporter to
go to _ _ _ _. Not only do I find paying a bribe to this corrupt individual morally repugnant,
SOLUTIONS TO PROBLEMS SET B
PROBLEM 21.1B
SWIRL INCORPORATED
a.
25 Minutes, Easy
Effect of accepting the special order:
PROBLEM 21.2B
MATCHLESS CORP.
a. Make the Buy the Incremental
Radios Radios Analysis
Manufacturing costs for 20,000 radios:
Direct materials 400,000$ 400,000$
Direct labor 500,000 500,000
b. Effect of alternative use of factory space:
30 Minutes, Medium
Based upon the above analysis, management will save $185,000 if it buys the radios from an
outside source.
a. Make the Buy the Incremental
Switches Switches Analysis
Manufacturing costs for 100,000 switches:
(1) $200,000 - ($200,000 × 70%) = $60,000
(2) $50,000 - $19,000 = $31,000
b. Effect of alternative use of factory space:
Based upon the above analysis, management will save $9,000 by purchasing the switches from an
outside source rather than making them.
30 Minutes, Medium PROBLEM 21.3B
JAMES LIGHTING
a. Schedule showin
g
contribution mar
g
in
p
er machine-hour for each
p
roduct:
Sales
p
rice
p
er unit 300$ 150$
Less variable costs and
ex
p
enses:
Direct materials 60$ 50
Direct labo
r
40 20
V
ariable manufacturin
g
overhead
(
2/3 of total
)
48 16
30 Minutes, Medium
Model A Model B
PROBLEM 21.4B
SUPERIOR INSTRUMENTS
a. Sell to
Convert mail order Incremental
to High Def. firm Analysis
25 Minutes, Medium PROBLEM 21.5B
TOOPS
x $250).
Out-of-pocket costs: The $260,000 that may be spent to convert the standard definition TVs
to high definition.
