Chapter 7: Using Excel to Make Decisions at Current Designs Part 1 Situation 1
Data
Units desired by brewing company 100 coolers
Costs of producing coolers:
Direct materials 80.00$ per cooler
Direct labor 60.00$ per cooler
Variable overhead 20.00$ per cooler
Fixed overhead 1,000$
Cost to modify existing mold 2,000$
Cost to be paid by brewing company 250.00$ per cooler
Required
Follow the step-by-step directions to prepare an incremental analysis for Current Designs.
Part 1 – Situation 1
(a) Reject Order Accept Order
Net Income
Increase
(Decrease)
Revenues –$ 25,000$ 25,000$
Costs:
– 8,000 8,000
– 6,000 6,000
(b)
Assuming that Current Designs is currently operating with excess capacity, it
should accept the order based on the calculations shown in part (a). If Current
Designs is currently operating at full capacity, it would have to weigh its options.
If it displaced production of regular kayaks in order to fill this order, it would have
Direct materials
Direct labor
Cost to modify existing mold
Chapter 7: Using Excel to Make Decisions at Current Designs
Part 1 Situation 2(a)
Data
Current oven operating data:
Annual natural gas usage 17,000 therms
Expected current selling price $10,000
New oven operating data:
Annual natural gas usage 15,000 therms
Purchase price $250,000
Expected useful life 10 years
Expected salvage value $0
Average expected price of natural gas $0.65 per therm
Required
Follow the step-by-step directions to prepare an incremental analysis for Current Designs.
Part 1 – Situation 2 (a)
Retain Oven Replace Oven
Net Income
Increase
(Decrease)
110,500$ 97,500$ $13,000
Variable manufacturing costs
Proceeds from scrapping old oven
Chapter 7: Using Excel to Make Decisions at Current Designs Part 1 Situation 2(b)
Data
Current oven operating data:
Annual natural gas usage 17,000 therms
Expected current selling price $10,000
New oven operating data:
Annual natural gas usage 15,000 therms
Required
Follow the step-by-step directions to prepare an incremental analysis for Current Designs.
Part 1 – Situation 2 (b)
Retain Oven Replace Oven
Net Income
Increase
(Decrease)
Proceeds from scrapping old oven
144,500$ 127,500$ $17,000
0 250,000 (250,000)
Variable manufacturing costs
New oven cost
Chapter 7: Using Excel to Make Decisions at Current Designs Part 1 Situation 3
Data
Costs to produce seats internally
Direct materials 20.00$ per seat
Direct labor 12.00$ per seat
Variable overhead 15.00$ per seat
Fixed overhead 20,000 per year
Number of seats needed 3,000 seats
Avoidable fixed overhead costs 25%
Cost to buy seats from a supplier 50.00$ per seat
Opportunity cost $20,000
Required
Follow the step-by-step directions to prepare an incremental analysis for Current Designs.
Part 1 – Situation 3
(a) Make Buy
Net Income
Increase
(Decrease)
60,000$ –$
$ 60,000
36,000 –
36,000
(b) Make Buy
Net Income
Increase
(Decrease)
Total annual cost 161,000$ 165,000$ (4,000)$
Direct materials
Direct labor
45,000
5,000
Purchase price
Variable overhead
Fixed overhead
Chapter 7: Using Excel to Make Decisions at Current Designs Part 2
Data
Costs of producing coolers:
Direct materials 96.00$ per cooler
Direct labor 60.00$ per cooler
Variable overhead 20.00$ per cooler
Required
Follow the step-by-step directions to prepare an incremental analysis for Current Designs.
Part 2
Reject Order Accept Order
Net Income
Increase
(Decrease)
Revenues –$ 25,000$ 25,000$
Costs: