Chapter 7 – Weygandt Managerial 7e
Challenge Exercises Solutions
Solution
CE7-1
(a) Calculations:
Sales price = $6,750,000/75,000 units = $90 per unit
Cost of goods sold = $4,875,000
Reject order
Accept order
Net Income
Increase (Decrease)
Revenues (4,000 x $62)
$0
$248,000
$248,000
Costs
Cost of Goods Sold (4,000 x $52)
0
(208,000)
(208,000)
Operating Expenses (4,000 x $7)
0
(28,000)
(28,000)
Shipping Expenses
0
(7,000)
(7,000)
Net Income
$0
$ 5,000
$ 5,000
(b) Yes, Conklan should accept this order. Its income is higher with this order than without it. It
has available capacity and the order does not increase its fixed costs. The revenue brought in
(c) Conklan should accept the order from Benson Building and Supply because it increases net
income by $17,500 which is $12,500 more than the special order from Langston’s Landscape
Company. Even with the additional purchase of the part, this order is profitable.
Reject order
Accept order
Net Income
Increase
(Decrease)
Revenues (15,000 x $65)
$0
$975,000
$975,000
Costs
0
(847,500)
Operating Expenses (15,000 x $7)
0
(105,000)
Unique part
0
(5,000)
(5,000)
Net Income
$ 17,500
$ 17,500
Solution
CE 7-2
(a) Sales ($450,000 + $750,000 + $300,000) $1,500,000
Variable Expenses ($225,000 + $300,000 + $217,500) 742,500
(b) Assurance Decoder Company Total
Sales $450,000 $750,000 $1,200,000
(c) No, the total for the company is higher when the Burglar Beware product line is included. If it
is discontinued, the common expenses that it was covering must be allocated to the other
(d) Assurance Decoder Company Total
Sales $450,000 $750,000 $1,200,000
$150,000/2 = $75,000 per product line