Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
Exercise 23–15 (15 minutes)
3.
Price Quote
Labor ($53 x 4)……………………………………………………………..
$ 212
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PROBLEM SET A
Problem 23-1A (45 minutes)
JONES PRODUCTS
COMPARATIVE INCOME STATEMENTS
(1)
(2)
(3)
Normal
New
Volume
Business
Combined
Sales ……………………………………………………
$2,400,000
$260,000
$2,660,000
Costs and expenses
Direct materials …………………………..
576,000
72,000
648,000
Supporting computations
$576,000
400,000
$ 1.44
50,000
$ 72,000
$144,000
$ 0.36
0.18
$ 0.54
$320,000
400,000
$ 0.60
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
Problem 23-2A (40 minutes)
Part 1
CALLA COMPANY
COMPARATIVE INCOME STATEMENTS
(a)
(b)
(c)
Normal
New
Volume
Business
Combined
Sales …………………………………………..
$4,000,000
$450,000
$4,450,000
Costs and expenses
Direct materials …………………………
800,000
100,000
900,000
Direct labor …………………………..…..
640,000
720,000
Selling expenses ……………………….
560,000
622,000
Administrative expenses …………..
Operating income ……………………….
$123,000
Supporting computations
Normal sales revenue (80,000 x $50) ………………………
$4,000,000
New business sales revenue (10,000 x $45) …………….
$ 450,000
Normal direct materials cost ………………………………….
$ 800,000
Units of output ………………………………………………………
80,000
Direct materials cost per unit …………………………………
New business volume ……………………………………………
10,000
New business direct materials cost ………………………..
$ 100,000
Normal direct labor cost ………………………………………..
$ 640,000
Units of output ………………………………………………………
Direct labor cost per unit …………………………..…………..
New business volume ……………………………………………
10,000
New business direct labor cost ………………………………
$ 80,000
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Problem 23-2A (concluded)
Total overhead ………………………………………………………
$ 960,000
Fixed overhead (30%) ……………………………………………
288,000
Variable overhead …………………………………………………
$ 672,000
Units of output ………………………………………………………
80,000
Variable overhead cost per unit ……………………………..
$ 8.40
New business volume ……………………………………………
New business variable overhead cost …………………….
$ 84,000
Total selling expenses …………………………………………..
Fixed selling expenses (40%) …………………………………
Variable selling expenses ………………………………………
Units of output ………………………………………………………
Variable selling expenses cost per unit ………………….
$ 4.20
Plus additional selling expenses per unit ……………….
Total selling cost per unit for this order ………………….
$ 6.20
New business volume ……………………………………………
New business selling expenses …………………………..…
$ 62,000
Part 2
Accept offer. Calla should accept the offer as it increases income.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
Problem 23-3A (30 minutes)
Part 1
INCREMENTAL COST OF MAKING RX5
Variable costs:
Direct materials (50,000 units x $5.00 per unit) ……………………….
$250,000
Variable overhead ($450,000* x 20%) ……………………………………..
Total incremental cost of making 50,000 units ………………………….
Part 2
INCREMENTAL COST OF BUYING THE PART
Cost per unit to buy …………………………………………………………………
$ 18.00
Part 3
Make RX5. The incremental cost to make it is less than the cost to buy it.
For the instructor: Other factors Haver should consider besides cost are:
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
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Problem 23-4A (30 minutes)
Alternative 1: Sell to a second-hand shop
Incremental income ………………………………………………………………….
Alternative 2: Disassemble and sell to a recycler
Incremental revenue (5,000 x $12.00) ………………………………………..
$ 60,000
Incremental income ………………………………………………………………….
Alternative 3: Rework and sell at regular prices
Incremental revenue (3,000 x $45.00) ………………………………………..
$135,000
Incremental income ………………………………………………………………….
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Problem 23-5A (55 minutes)
Part 1
Product G
Product B
Selling price per unit ……………………………………………..
$120
$160
Variable costs per unit …………………………………………..
40
90
Part 2
Sales Mix Recommendation. To the extent allowed by production and
market constraints, the company should produce as much of Product G as
Contribution Margin at Recommended Sales Mix
1400
Problem 23-5A (Continued)
Part 3
Sales Mix Recommendation with Second Shift. If the second shift is added,
the maximum possible output of G will double:
However, this level of output exceeds the company’s market constraint of
600 units of G per month. This means the company should produce 600
units of Product G, and commit the remainder of the productive capacity to
Product B. This is computed as follows:
Units of Product G ………………………………………………………
= 600 units per month
Hours per unit ……………………………………………………….
Hours used for Product G …………………………………………..
Contribution Margin at This Sales Mix
Units
Contr./unit
Total
From G ……………………………………………………….
600
$80
$48,000
From B ……………………………………………………….
112
Less extra shift costs ……………………………………
(15,000)
1401
Problem 23-5A (Continued)
Part 4
Sales Mix Recommendation. By incurring additional marketing cost, the
capacity, if any, to Product B. These computations are:
Units of Product G ………………………………………………………
= 700 units per month
Hours per unit ……………………………………………………….
Hours used for Product G …………………………………………..
280
The output of Product B with 72 production hours is:
Contribution Margin at This Sales Mix
Units
Contr./unit
Total
From G ………………………………………………………….
700
$80
$56,000
From B ………………………………………………………….
Less extra shift costs …………………………………….
Less extra marketing costs …………………………..
Management decision. This contribution margin of $34,040 is less than the
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Problem 23-6A (60 minutes)
Part 1
ELEGANT DECOR COMPANY
Analysis of Expenses under Elimination of Department 200
Total
Eliminated
Continuing
Expenses
Expenses
Expenses
Cost of goods sold ……………………………………….
$469,000
$207,000
$262,000
Direct expenses
Advertising …………………………………………………
29,000
12,000
17,000
Store supplies used …………………………..
7,800
3,800
4,000
Allocated expenses
Sales salaries* …………………………………………….
36,400
67,600
Rent expense………………………………………………
14,160
14,160
Office salary* ………………………………………………
31,200
15,600
15,600
Insurance expense* …………………………..
3,100
2,330
Miscellaneous office expenses* …………………..
*Computation notes. Closing Department 200 will eliminate 70% of its insurance
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Problem 23-6A (Continued)
Part 2
ELEGANT DECOR COMPANY
Forecasted Annual Income Statement
Under Plan to Eliminate Department 200
Sales ……………………………………………………………………………………………
$436,000
Cost of goods sold ………………………………………………………………………
262,000
Gross profit from sales ………………………………………………………………..
174,000
Operating expenses
Advertising ………………………………………………………………………………..
17,000
Sales salaries …………………………………………………………………………….
Rent expense …………………………………………………………………………….
14,160
Insurance expense …………………………………………………………………….
Miscellaneous office expenses …………………………………………………..
3,600
142,490
* Administrative salary reassignment
Total
Sales
Office
Salaries
Salaries
Salary
Salesclerks ……………………………………………………….
$52,000
$52,000
Administrative worker ……………………………………………….
1404
Problem 23-6A (Continued)
Part 3
ELEGANT DECOR COMPANY
Reconciliation of Combined Income With Forecasted Income
Combined net income ……………………………………………………………….
$ 37,440
Forecasted net income is $5,930 lower than the current combined net
income. Department 200’s avoidable expenses of $284,070 are $5,930 less
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 23
PROBLEM SET B
Problem 23–1B (45 minutes)
WINDMIRE COMPANY
COMPARATIVE INCOME STATEMENTS
(1)
(2)
(3)
Normal
New
Volume
Business
Combined
Sales ……………………………………………………
$1,200,000
$172,000
$1,372,000
Costs and expenses
Direct materials ………………………………….
384,000
64,000
448,000
Supporting computations
Normal direct material cost ……………………………………………..
$384,000
Units of output ………………………………………………………………..
300,000
Direct materials cost per unit …………………………………………..
$ 1.28
New business volume ……………………………………………………..
50,000
New business direct material cost ……………………………………
$ 64,000
Normal direct labor cost ………………………………………………….
$ 96,000
Units of output ………………………………………………………………..
300,000
Direct labor cost per unit …………………………..…………………….
$ 0.32
Overtime per unit (50%) …………………………………………………..
0.16
$ 0.48
New business volume ……………………………………………………..
New business direct labor cost ………………………………………..
$ 24,000
Total overhead ……………………………………………………….……….
$288,000
Fixed overhead (25%) ……………………………………………………..
Variable overhead ……………………………………………………….
$216,000
Units of output ………………………………………………………………..
Variable overhead cost per unit ……………………………………….
New business volume ……………………………………………………..
50,000
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Problem 23-2B (50 minutes)
Part 1
MERVIN COMPANY
COMPARATIVE INCOME STATEMENTS
(a)
(b)
(c)
Normal
New
Volume
Business
Combined
Sales …………………………………………..
$4,400,000
$300,000
$4,700,000
Costs and expenses
Direct materials …………………………
825,000
75,000
900,000
275,000
Supporting computations
Normal sales revenue (550,000 x $8) ………………………
$4,400,000
New business sales revenue (50,000 x $6) ………………
$ 300,000
Normal direct materials cost ………………………………….
$ 825,000
Units of output ………………………………………………………
550,000
Direct materials cost per unit …………………………………
New business volume ……………………………………………
New business direct materials cost ………………………..
Normal direct labor cost ………………………………………..
$1,100,000
Units of output ………………………………………………………
550,000
Direct labor cost per unit …………………………..…………..
$ 2.00
New business volume ……………………………………………
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Problem 23-2B (concluded)
Total overhead ………………………………………………………
$1,375,000
Fixed overhead (20%) ……………………………………………
275,000
Variable overhead …………………………………………………
$1,100,000
Units of output ………………………………………………………
550,000
New business volume ……………………………………………
New business variable overhead cost …………………….
Total selling expenses …………………………………………..
Variable selling expenses ………………………………………
110,000
Units of output ………………………………………………………
550,000
Variable selling expense cost per unit ……………………
Plus additional selling expenses per unit ……………….
New business volume ……………………………………………
Part 2
Accept the order. The order provides additional income of $4,300.
Part 3
Other factors that Mervin should consider are:
Part 4
If the new customer demands 100,000 units instead of 50,000, this will
mean that Mervin will lose sales of 50,000 units at the regular price. They
Problem 23-3B (30 minutes)
Part 1
INCREMENTAL COST OF MAKING TH1
Variable costs:
Direct materials (400,000 units x $1.20 per unit) …………………………..
$ 480,000
Direct labor (400,000 units x $1.50 per unit) …………………………..
INCREMENTAL COST OF BUYING TH1
Cost per unit to buy ………………………………………………………………………….
$ 4.00
Part 2
Other factors Alto should consider besides cost are:
• Will the supplier provide the quality that Alto needs?