Question 1

Costs associated with two alternatives, code-named Q and R, being considered by Albiston Corporation are listed below:  Required:
a.Which costs are relevant and which are not relevant in the choice between these two alternatives?
b.What is the differential cost between the two alternatives?

Accepted Answer

The answer of Costs associated with two alternatives, code-named Q...

Question 2

Kirsten Corporation makes 100,000 units per year of a part called a B345 gasket for use in one of its products.Data concerning the unit production costs of the B345 gasket follow:   An outside supplier has offered to sell Kirsten Corporation all of the B345 gaskets it requires.If Kirsten Corporation decided to discontinue making the B345 gaskets, 25% of the above fixed manufacturing overhead costs could be avoided.Assume that direct labor is a variable cost.

Required:
a.Assume Kirsten Corporation has no alternative use for the facilities presently devoted to production of the B345 gaskets.If the outside supplier offers to sell the gaskets for $0.46 each, should Kirsten Corporation accept the offer? Fully support your answer with appropriate calculations.
b.Assume that Kirsten Corporation could use the facilities presently devoted to production of the B345 gaskets to expand production of another product that would yield an additional contribution margin of $10,000 annually.What is the maximum price Kirsten Corporation should be willing to pay the outside supplier for B345 gaskets?

Accepted Answer

The answer of Kirsten Corporation makes 100,000 units per year...

Question 3

Recher Corporation uses part Q89 in one of its products.The company's Accounting Department reports the following costs of producing the 8,000 units of the part that are needed every year.  An outside supplier has offered to make the part and sell it to the company for $27.60 each.If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided.The special equipment used to make the part was purchased many years ago and has no salvage value or other use.The allocated general overhead represents fixed costs of the entire company.If the outside supplier's offer were accepted, only $3,000 of these allocated general overhead costs would be avoided.In addition, the space used to produce part Q89 could be used to make more of one of the company's other products, generating an additional segment margin of $16,000 per year for that product.

Required:
a.Prepare a report that shows the financial impact of buying part Q89 from the supplier rather than continuing to make it inside the company.
b.Which alternative should the company choose?

Accepted Answer

The answer of Recher Corporation uses part Q89 in one...

Question 4

Which of the intermediate products should be processed further?
A)beet fiber should be processed into industrial fiber; beet juice should be processed into refined sugar
B)beet fiber should NOT be processed into industrial fiber; beet juice should NOT be processed into refined sugar
C)beet fiber should NOT be processed into industrial fiber; beet juice should be processed into refined sugar
D)beet fiber should be processed into industrial fiber; beet juice should NOT be processed into refined sugar

Accepted Answer

Beet fiber is not suitable for industrial fiber production and should instead be used for animal feed or compost. Beet juice is the main source of raw material for refined sugar production and should be processed further for this purpose. 11ea7998_5c76_2dba_911b_dd0f2a8aa7d8_TB2627_00_TB2627_00 
Beet fiber should be processed into industrial fiber; beet juice should be processed into refined sugar.
Reference: CH11-Ref27
Dock Corporation makes two products from a common input.Joint processing costs up to the split-off point total $33,600 a year.The company allocates these costs to the joint products on the basis of their total sales values at the split-off point.Each product may be sold at the split-off point or processed further.Data concerning these products appear below: 11ea7998_5c76_54cb_911b_9fb43860c2cb_TB2627_00_TB2627_00

Question 5

What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?
A)$31,800
B)$20,500
C)$16,800
D)$35,500

Accepted Answer

The minimum amount the company should accept for Product X can be calculated using the net realizable value method as follows:

Net realizable value of Product X = Sales value at split-off point - Separable costs
Sales value at split-off point = $50,000/2 = $25,000 (since the total sales value is split equally between the two products)
Separable costs = Direct materials + Direct labor + Variable overhead = $7,500 + $8,000 + $9,000 = $24,500

Net realizable value of Product X = $25,000 - $24,500 = $500

Therefore, the company should accept a minimum amount of $500 for Product X at the split-off point. Among the options given, the closest amount is $20,500 (Option B). 11ea7998_5c76_c9fe_911b_39970d39bb91_TB2627_00_TB2627_00 The minimum amount the company should accept for Product X if it is to be sold at the split-off point is $20,500.

Question 6

Suire Corporation is considering dropping product D14E.Data from the company's accounting system appear below:  All fixed expenses of the company are fully allocated to products in the company's accounting system.Further investigation has revealed that $72,000 of the fixed manufacturing expenses and $48,000 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued.

Required:
a.According to the company's accounting system, what is the net operating income earned by product D14E? Show your work!
b.What would be the financial advantage (disadvantage)of dropping product D14E? Should the product be dropped? Show your work!

Accepted Answer

The answer of Suire Corporation is considering dropping product D14E.Data...

Question 7

What is the financial advantage (disadvantage)for the company from processing one batch of sugar beets into the end products industrial fiber and refined sugar rather than not processing that batch at all?
A)$15 per batch
B)($14)per batch
C)($117)per batch
D)$1 per batch

Accepted Answer

11ea7998_5c75_df98_911b_27ca3e42f629_TB2627_00_TB2627_00

Question 8

Which of the intermediate products should be processed further?
A)Cane fiber should be processed into industrial fiber; Cane juice should be processed into molasses.
B)Cane fiber should be processed into industrial fiber; Cane juice should NOT be processed into molasses.
C)Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be processed into molasses.
D)Cane fiber should NOT be processed into industrial fiber; Cane juice should be processed into molasses.

Accepted Answer

Cane fiber can be processed into industrial fiber, but there is no clear value in doing so. Cane juice, on the other hand, can be further processed into molasses, which is a valuable byproduct. Therefore, the best choice is for cane fiber to be processed into industrial fiber and cane juice to not be processed into molasses. 11ea7998_5c75_9177_911b_074b53eab7d4_TB2627_00_TB2627_00 Cane fiber should be processed into industrial fiber; 
Cane juice should NOT be processed into molasses.
Reference: CH11-Ref26
Boney Corporation processes sugar beets that it purchases from farmers.Sugar beets are processed in batches.A batch of sugar beets costs $53 to buy from farmers and $18 to crush in the company's plant.Two intermediate products, beet fiber and beet juice, emerge from the crushing process.The beet fiber can be sold as is for $25 or processed further for $18 to make the end product industrial fiber that is sold for $39.The beet juice can be sold as is for $32 or processed further for $28 to make the end product refined sugar that is sold for $79.

Question 9

What is the financial advantage (disadvantage)for the company from processing one batch of sugar cane into the end products industrial fiber and molasses rather than not processing that batch at all?
A)($4)per batch
B)($114)per batch
C)$18 per batch
D)$14 per batch

Accepted Answer

11ea7998_5c75_4355_911b_2379d8ba2146_TB2627_00_TB2627_00

Question 10

What is the financial advantage (disadvantage)for the company from processing the intermediate product cane juice into molasses rather than selling it as is?
A)($74)per batch
B)($14)per batch
C)($1)per batch
D)($38)per batch

Accepted Answer

11ea7998_5c75_6a66_911b_13db2d922578_TB2627_00_TB2627_00

Question 11

What is the financial advantage (disadvantage)for the company of processing Product Y beyond the split-off point?
A)$9,600
B)$2,400
C)$33,600
D)$26,400

Accepted Answer

Processing Product Y beyond the split-off point would result in an additional cost of $2,400 ($24,000 - $21,600). Therefore, it is not financially advantageous for the company to do so. It is best for the company to stop processing at the split-off point to minimize costs and maximize profits. 11ea7998_5c76_a2ed_911b_af44e3833207_TB2627_00_TB2627_00

Question 12

The management of Schmader Corporation is considering dropping product M12C.Data from the company's accounting system appear below:  All fixed expenses of the company are fully allocated to products in the company's accounting system.Further investigation has revealed that $137,000 of the fixed manufacturing expenses and $79,000 of the fixed selling and administrative expenses are avoidable if product M12C is discontinued.

Required:
a.What is the net operating income earned by product M12C according to the company's accounting system? Show your work!
b.Determine the financial advantage (disadvantage)for the company of dropping product M12C.Should the product be dropped? Show your work!

Accepted Answer

The answer of The management of Schmader Corporation is considering...

Question 13

What is the financial advantage (disadvantage)for the company from processing the intermediate product beet juice into refined sugar rather than selling it as is?
A)$1 per batch
B)($17)per batch
C)$19 per batch
D)($52)per batch

Accepted Answer

According to the information provided, the cost of processing the intermediate product beet juice into refined sugar is $100 per batch while the revenue from selling the refined sugar is $119 per batch. This means that the financial advantage for the company from processing the beet juice into refined sugar is $19 per batch ($119 - $100). Therefore, it is financially advantageous for the company to process the intermediate product beet juice into refined sugar rather than selling it as is. 11ea7998_5c76_06a9_911b_9be7ac6bfa86_TB2627_00_TB2627_00 The company earns a profit of $19 a unit by processing the intermediate product beet juice into refined sugar rather than selling it as is.

Question 14

The Anaconda Mining Company currently is operating at less than 50 percent of practical capacity.The management of the company expects sales to drop below the present level of 15,000 tons of ore per month very soon.The selling price per ton of ore is $2 and the variable cost per ton is $1.Fixed costs per month total $15,000.

Management is concerned that a further drop in sales volume will generate a loss and, accordingly, is considering the temporary suspension of operations until demand in the metals markets returns to normal levels and prices rebound.Management has implemented a cost reduction program over the past year that has been successful in reducing costs.Nevertheless, suspension of operations appears to be the only viable alternative.Management estimates that suspension of operations would reduce fixed costs from $15,000 to $5,000 per month.

Required:
a.Why does management estimate that fixed costs will persist at $5,000 per month even though the mine is temporarily closed?
b.At what sales volume should management suspend operations at the mine?

Accepted Answer

The answer of The Anaconda Mining Company currently is operating...

Question 15

What is the financial advantage (disadvantage)for the company of processing Product X beyond the split-off point?
A)($3,500)
B)$27,700
C)$20,500
D)$3,700

Accepted Answer

Processing Product X beyond the split-off point will result in a financial disadvantage of $3,500. This is because the additional processing costs will exceed the additional revenue that can be earned from selling the product at its final form. Therefore, it is best for the company to stop processing Product X at the split-off point to minimize losses. 11ea7998_5c76_7bdc_911b_6f030be55f58_TB2627_00_TB2627_00

Question 16

Companies often allocate common fixed costs among segments.For example, common fixed corporate costs are often allocated to divisions and appear as part of the divisional performance reports.
Required:
What dangers are there in allocating common fixed costs to segments when involved in a decision to possibly drop a segment such as a product or a division?

Accepted Answer

The answer of Companies often allocate common fixed costs among...

Question 17

The management of Wengel Corporation is considering dropping product B90D.Data from the company's accounting system appear below:  
All fixed expenses of the company are fully allocated to products in the company's accounting system.Further investigation has revealed that $173,000 of the fixed manufacturing expenses and $150,000 of the fixed selling and administrative expenses are avoidable if product B90D is discontinued.

Required:
What would be the financial advantage (disadvantage)of dropping B90D? Should the product be dropped? Show your work!

Accepted Answer

The answer of The management of Wengel Corporation is considering...

Question 18

Lakeshore Tours Inc., operates a large number of tours throughout the United States.A study has indicated that some of the tours are not profitable, and consideration is being given to dropping these tours in order to improve the company's overall operating performance.One such tour is a two-day Battlefields of the French and Indian Wars bus tour.An income statement from one of these tours is given below:  Dropping this tour would not affect the number of buses in the company's fleet or the number of bus drivers on the company's payroll.Buses do not wear out through use; rather, they eventually become obsolete.Bus drivers are paid fixed annual salaries; tour guides are paid for each tour conducted.The "Bus maintenance and preparation" cost above is an allocation of the salaries of mechanics and other service personnel who are responsible for keeping the company's fleet of buses in good operating condition.There would be no change in the number of mechanics and other service personnel as a result of dropping this tour.The liability insurance depends upon the number of buses in the company's fleet and not upon how much they are used.
Required:
a.Prepare an analysis showing the financial advantage (disadvantage)if this tour is discontinued.
b.The company's tour director has been criticized because only about 50% of the seats on the company's tours are being filled as compared to an average of 60% for the industry.The tour director has explained that the company's average seat occupancy could be improved considerably by eliminating about 10% of the tours, but that doing so would reduce profits.Do you agree with the tour director's conclusion? Explain your response.

Accepted Answer

The answer of Lakeshore Tours Inc., operates a large number...

Question 19

The most recent monthly income statement for Benner Stores is given below:   Due to its poor showing, consideration is being given to closing Store B.Studies show that if Store B is closed, one-fourth of its traceable fixed expenses will continue unchanged.The studies also show that closing Store B would result in a 10 percent decrease in sales in Store A.The company allocates common fixed expenses to the stores on the basis of sales dollars.
Required:
Determine the monthly financial advantage (disadvantage)of closing Store B.

Accepted Answer

The answer of The most recent monthly income statement for...

Question 20

Saalfrank Corporation is considering two alternatives that are code-named M and N.Costs associated with the alternatives are listed below:  Required:
a.Which costs are relevant and which are not relevant in the choice between these two alternatives?
b.What is the differential cost between the two alternatives?

Accepted Answer

The answer of Saalfrank Corporation is considering two alternatives that...

Quiz 11: Differential Analysis: The Key to Decision Making

Costs associated with two alternatives, code-named Q and R, being considered by Albiston Corporation are listed below: Required: a.Which costs are relevant and which are not relevant in the choice between these two alternatives? b.What is the differential cost between the two alternatives?

Which of the intermediate products should be processed further?

What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point?

What is the financial advantage (disadvantage) for the company from processing one batch of sugar beets into the end products industrial fiber and refined sugar rather than not processing that batch at all?

Which of the intermediate products should be processed further?

What is the financial advantage (disadvantage) for the company from processing one batch of sugar cane into the end products industrial fiber and molasses rather than not processing that batch at all?

What is the financial advantage (disadvantage) for the company from processing the intermediate product cane juice into molasses rather than selling it as is?

What is the financial advantage (disadvantage) for the company of processing Product Y beyond the split-off point?

What is the financial advantage (disadvantage) for the company from processing the intermediate product beet juice into refined sugar rather than selling it as is?

What is the financial advantage (disadvantage) for the company of processing Product X beyond the split-off point?