Quiz 8
1.0 Given for the Salim Company:
Ice-creamCandyCards
Sales$20$15$10
Variable costs10 10 8
Contribution margin 10 5 2
Fixed costs (allocated
equally to departments) 5 5 5
______
Operating profit$ 5$ 0$ (3)
a)If no other alternative exists for the Cards department, should the company drop the Cards product line?
b)Assume Salim Company does drop the Cards department. Why did the Candy department go from a “breakeven” position to a loss position? Should it be dropped?
c)What if the common fixed costs, which were originally allocated equally, is now allocated with $10 to Ice-cream, $4 to Candy and $1 to Cards. Would you change any of your decisions made in (a) and (b)?
2.0 Cooler has a received a special order for 2,000 units at $13 per unit. There would be no change in fixed costs if the order is accepted. Cooler’s production capacity is 15,000 units. Under what conditions should Cooler accept the special order?
3.0The manager of Evergreen Company expects the following per-unit results at a capacity of 10,000 units.
Selling Price$40 per unit
Variable costs
Production$15 per unit
Selling$ 5 per unit
Fixed Costs$ 80000
Evergreen has been approached by a large chain store that offers to buy 3,000 units at $24. The company currently sells 8,000 units to regular customers. The variable selling costs on the special order are $2 per unit (instead of $5)
Required: Determine whether the firm should accept the special order.
4.0 Giraldi Company manufactures toasters. For the first 8 months of 2000, the company reported the following operating results while operating at 75% of plant capacity:
Sales (400,000)$4,000,000
Cost of Goods Sold 2,400,000
Gross profit 1,600,000
Operating expenses 900,000
Net income 700,000
Cost of goods sold was 70% variable and 30% fixed; operating expenses were 60% variable and 40% fixed. In September, Giraldi Company receives a special order for 15,000 toasters at $6 each from Alazar Co. Acceptance of the order would result in an additional $3,000 in shipping costs but no other increase in fixed expenses. Should Giraldi accept the special order?
5.0 Solex Co. manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $100,000 per year. The company allocates these costs to the joint products on the basis of their total sales value at the split off point. These sales values are as follows: product X, $50,000; product Y, $90,000; and product Z, $60,000.
Each product may be sold at the split off point or processed further. Additional processing requires no special facilities. The additional processing costs and the sales value after further processing for each product (on an annual basis) are shown below:
Product / Additional Processing Costs / Sales ValueX / $35,000 / $80,000
Y / $40,000 / $150,000
Z / $12,000 / $75,000
Which product/s should be sold at split-off point, and which product/s should be process further?
6.0 Shelby Co. produces three products, X, Y, and Z. Cost and revenue characteristics of the three products follow (per unit):
ProductX / Y / Z
Selling price / $80 / $56 / $70
Direct Materials / 24 / 15 / 9
Labor and Overhead / 24 / 27 / 40
Contribution Margin / $32 / $14 / $21
Contribution margin ratio / 40% / 25% / 30%
Demand for the company’s products is very strong, with far more orders on hand each month than the company has raw materials available to produce. The same material is used in each product. The material costs $3 per pound, with a maximum of 5,000 pounds available each month.
a)Which orders would you advise the company to accept first, those for X, Y or Z. Which orders second? Third?
b)If the customers order 500 units of X, 500 units of Y and 1000 units of Z. How much of X, Y and Z should Shelby produce and sell?