account 417698

39. Lott Bicycle Company has been manufacturing its own seats for its

bicycles. The company is currently operating at 100% of capacity,

and variable manufacturing overhead is charged to production at the

rate of 60% of direct labor cost. The direct materials and direct

labor cost per unit to make the bicycle seats are $8.00 and $9.00,

respectively. Normal production is 50,000 bicycles per year.

A supplier offers to make the bicycle seats at a price of $20 each.

If the bicycle company accepts this offer, all variable

manufacturing costs will be eliminated, but the $30,000 of fixed

manufacturing overhead currently being charged to the bicycle seats

will have to be absorbed by other products.

INSTRUCTIONS

Prepare the incremental analysis for the decision to make or buy

the bicycle seats. Should Lott Bicycle Company buy the seats from the outside supplier?

a. MAKE $20000 adv. b. BUY Af?cAc‚¬” 120000 adv.

c. BUY $20000adv. d. MAKE $120000 adv.

40. Benson Company produced and sold 20,000 units of product and is

operating at 80% of plant capacity. Unit information about its

product is as follows:

Sales Price $70

Variable manufacturing cost $45

Fixed manufacturing cost ($300,000/20,000) 15 60

Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”

Profit per unit $10

The company received a proposal from a foreign company to buy 4,000

units of Benson Company’s product for $50 per unit. This is a

one time only order and acceptance of this proposal will not affect

the company’s regular sales. The president of Benson Company is

reluctant to accept the proposal because he is concerned that the

company will lose money on the special order.

INSTRUCTIONS

Prepare a schedule reflecting an incremental analysis of this

proposal and indicate the effect the acceptance of this order might

have on the company’s income.

a. Might INCREASE income by $20,000. b. Might INCREASE income by $120,000.

c. Might DECREASE income by $120,000. d. Might DECREASE income by $20,000.

41. Carter Company manufactures cappuccino makers. For the first eight

months of 2013 the company reported the following operating results

while operating at 80% of plant capacity:

Sales (500,000 units) $75,000,000

Cost of goods sold 45,000,000

Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”

Gross profit 30,000,000

Operating expenses 24,000,000

Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”

Net income $ 6,000,000

An analysis of costs and expenses reveals that variable cost of

goods sold is $80 per unit and variable operating expenses are

$30 per unit.

In September, Carter Company receives a special order for 40,000

machines at $120 each from a major coffee shop franchise.

Acceptance of the order would result in $10,000 of shipping costs

but no increase in fixed expenses.

INSTRUCTIONS

Prepare an incremental analysis for the special order. Should Carter Company accept the special order?

a. ACCEPT. b. REJECT.

42. Monroe Enterprises relies heavily on a copier machine to process the

paperwork. Recently the copy clerk has not been able to process all

the necessary copies within the regular work week.

Management is considering updating the copier machine with a faster

model.

Current Copier New Model

Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”

Original purchase cost $10,000 $20,000

Accumulated depreciation 8,000 Af?cAc‚¬”Af?cAc‚¬”

Estimated operating costs (annual) 9,000 4,000

Useful life 5 years 5 years

If sold now, the current copier would have a salvage value of

$1,000. If operated for the remainder of its useful life, the

current machine would have zero salvage value. The new machine is

expected to have zero salvage value after five years.

INSTRUCTIONS

Prepare an analysis to show whether the company should retain or

replace the machine.

a. RETAIN income up $45000. b. REPLACE income up by $6000.

c. RETAIN income down $39000. d. REPLACE income down by $6,000.

43. Simon Forest Corporation operates two divisions, the Timber

Division and the Consumer Division. The Timber Division manufactures

and sells logs to paper manufacturers. The Consumer Division

operates retail lumber mills which sell a variety of products in the

do it yourself homeowner market. The company is considering

disposing of the Consumer Division since it has been consistently

unprofitable for a number of years. The income statements for the

two divisions for the year ended December 31, 2013 are presented

below:

Timber Consumer

Division Division Total

Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”

Sales $1,500,000 $ 400,000 $1,900,000

Cost of goods sold 900,000 300,000 1,200,000

Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”

Gross profit 600,000 100,000 700,000

Selling & administrative expenses 250,000 150,000 400,000

Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬” Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”Af?cAc‚¬”

Net income $ 350,000 $( 50,000) $ 300,000

In the Consumer Division, 70% of the cost of goods sold are variable

costs and 30% of selling and administrative expenses are variable

costs. The management of the company feels it can save $50,000 of

fixed cost of goods sold and $40,000 of fixed selling expenses if it

discontinued operation of the consumer division.

INSTRUCTIONS

If the company had discontinued the division for 2013, determine what net income would have been.

a. Might have been $350,000. b. Might have been a loss of $55,000.

c. Might have been $295,000. d. Might have been a loss of $295,000.