M5 Problems E25-10 E25-13 E25-18 E25-15 CP25-34
M5 Problems E25-10 E25-13 E25-18 E25-15
Please complete the following
exercises and/or problems from the textbook:
answers in an Excel workbook, using one worksheet per exercise or problem.
E25-10 Making special pricing decisions
the Baseball Hall of Fame in Cooperstown, New York, has approached Hobby-Cardz
with a special order. The Hall of Fame wishes to purchase 57,000 baseball card
packs for a special promotional campaign and offers $0.41 per pack, a total of
$23,370. Hobby-Cardzâs total production cost is $0.61 per pack, as follows:
Direct materials $ 0.13
Direct labor 0.06
Variable overhead 0.12
Fixed overhead 0.30
Total cost $ 0.61
has enough excess capacity to handle the special order.
E25-13 Making dropping a product decisions
managers of Movie Street are alarmed by their operating losses. They are considering
dropping the DVD product line. Company accountants have prepared the following
analysis to help make this decision:
For the Year Ended December 31,
Total Blu-Ray Disc DVD Disc
Sales Revenue $432,000 $305,000 $127,000
Variable Costs 246,000 150,000 96,000
Constribution Margin 186,000 155,000 31,000
Manufacturing 128,000 71,000 57,000
Selling and Administrative 67,000 52,000 15,000
Total Fixed Expenses 195,000 123,000 72.000
Operating Income (Loss) $(9,000)
fixed costs will not change if the company stops selling DVDs.
a differential analysis to show whether Movie Street should drop the DVD
dropping DVDs add $41,000 to operating income? Explain.
E25-15 Making product mix decisions
Lifemaster produces two types of
exercise treadmills: regular and deluxe. The exercise craze is such that Lifemaster
could use all its available machine hours to produce either model. The two
models are processed through the same production departments. Data for both
models is as follows:
Sale Price 1,020
Direct Material 300
Direct Labor 88
Variable Manufacturing Overhead 264
Fixed Manufacturing Overhead* 138
Variable Operating Expenses 111
Total Costs 901
Operating Income $119
*allocated on the basis of machine hours
1. What is the constraint?
2. Which model should Lifemaster
produce? (Hint: Use the allocation of fixed manufacturing overhead to determine
the proportion of machine hours used by each product.)
3. If Lifemaster should produce
both models, compute the mix that will maximize operating income.
E25-18 Making outsourcing decisions
Systems manufactures an optical switch that it uses in its final product. The switch
has the following manufacturing costs per unit:
Direct Material $ 9.00
Direct Labor 1.50
Variable Overhead 5.00
Fixed Overhead 9.00
company has offered to sell Fiber Systems the switch for $18.50 per unit.
Fiber Systems buys the switch from the outside supplier, the manufacturing facilities
that will be idled cannot be used for any other purpose, yet none of the fixed
costs are avoidable. Prepare an outsourcing analysis to determine whether Fiber
P25-34 Making sell or process further decisions
problem continues the Davis Consulting, Inc. situation from Problem P24-37 of Chapter
24. Davis Consulting provides consulting services at an average price of $175
per hour and incurs variable costs of $100 per hour. Assume average fixed costs
are $5,250 a month.
has developed new software that will revolutionize billing for companies.
has already invested $200,000 in the software. It can market the software as is
at $30,000 per client and expects to sell to eight clients. Davis can develop
the software further, adding integration to Microsoft products at an additional
development cost of $120,000. The additional development will allow Davis to
sell the software for $38,000 each, but to 20 clients. Should Davis sell the
software as is or develop it further?
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