| a-1. | A large discount store has approached the owner of Lang about buying 7,000 calculators. It would replace The Math Machines label with its own logo to avoid affecting Langs existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $5.80 per calculator. Calculate the contribution margin from the special order. (Negative amount should be indicated by a minus sign.) CONTRIBUTION MARGIN LOSS ( ) | a-2. | Should Lang accept the special order? YES ( ) OR NO ( ) | | b-1. | Lang has an opportunity to buy the 47,000 calculators it currently makes from a reliable competing manufacturer for $6.50 each. The product meets Langs quality standards. Lang could continue to use its own logo, advertising program, and sales force to distribute the products. Should Lang buy the calculators or continue to make them? BUY ( ) OR MAKE ( ) | b-2. | Calculate the total cost for Lang to make and buy the 47,000 calculators. | MAKE BUY TOTAL COST( ) ( ) | b-3. | Should Lang buy the calculators or continue to make them, if the volume of sales were increased to 74,000 units? MAKE ( ) OR BUY ( ) | | c-1. | Calculate the contribution to profit from operating the calculator division. (Negative amount should be indicated by a minus sign.) CONTRIBUTION TO PROFIT (LOSS) _______________ | | c-2. | Should it be eliminated from the companys operations? YES ( ) OR NO ( ) | | 8 Asset replacement decision LO 13-5 | A machine purchased three years ago for $316,000 has a current book value using straight-line depreciation of $177,000; its operating expenses are $36,000 per year. A replacement machine would cost $239,000, have a useful life of ten years, and would require $10,000 per year in operating expenses. It has an expected salvage value of $71,000 after ten years. The current disposal value of the old machine is $81,000; if it is kept 10 more years, its residual value would be $16,000. | | | | Calculate the total costs in keeping the old machine and purchase a new machine. KEEP OLD MACHINE PURCHASE NEW MACHINE TOTAL COSTS ( ) ( ) | Should the old machine be replaced? YES ( ) OR NO ( ) 9 Effect of order quantity on special order decision LO 13-2 | Levy Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Levy made 29,000 blankets during the prior accounting period. The cost of producing the blankets is summarized as follows. | | | | | Materials cost ($28 per unit 29,000) | $ | 812,000 | | | Labor cost ($24 per unit 29,000) | | 696,000 | | | Manufacturing supplies ($3 29,000) | | 87,000 | | | Batch-level costs (29 batches at $3,000 per batch) | | 87,000 | | | Product-level costs | | 230,000 | | | Facility-level costs | | 310,000 | | | | | | | | Total costs | $ | 2,222,000 | | | | | | | | Cost per unit = $2,222,000 29,000 = $76.62 | | | | a-1. | Rios Motels has offered to buy a batch of 500 blankets for $59 each. Levy's normal selling price is $96 per unit, calculate the relevant cost per unit for the special order. COST PER UNIT ( ) | a-2. | Should Levy accept the special order? NO ( ) OR YES ( ) | | b-1. | Rios offered to buy a batch of 1,000 blankets for $62 per unit, calculate the relevant cost per unit for the special order. COST PER UNIT ( ) | | b-2. | Should Levy accept the special order? YES ( ) OR NO ( ) | 10 Eliminating a segment LO 13-4 | Niklos Boot Co. sells mens, womens, and childrens boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the mens department has a sales staff of nine employees, the manager of the womens department has six employees, and the manager of the childrens department has three employees. All departments are housed in a single store. In recent years, the childrens department has operated at a net loss and is expected to continue to do so. Last years income statements follow. | | | Mens Department | Womens Department | Childrens Department | | Sales | $ | 720,000 | | $ | 500,000 | | $ | 220,000 | | | Cost of goods sold | | (274,500 | ) | | (183,600 | ) | | (105,875 | ) | | | | | | | | | | | | | Gross margin | | 445,500 | | | 316,400 | | | 114,125 | | | Department managers salary | | (70,000 | ) | | (59,000 | ) | | (39,000 | ) | | Sales commissions | | (124,200 | ) | | (93,600 | ) | | (36,900 | ) | | Rent on store lease | | (39,000 | ) | | (39,000 | ) | | (39,000 | ) | | Store utilities | | (22,000 | ) | | (22,000 | ) | | (22,000 | ) | | | | | | | | | | | | | Net income (loss) | $ | 190,300 | | $ | 102,800 | | $ | (22,775 | ) | | | | | | | | | | | | | | | a-1. | Calculate the contribution to profit of the children's department. (Negative amount should be indicated by a minus sign.) CONTRIBUTION TO PROFIT (LOSS) ______________ | a-2. | Should the children's department be eliminated? YES ( ) OR NO ( ) | b-1. | Calculate the net income for the company as the whole with the children's department. (Negative amount should be indicated by a minus sign.) NET INCOME (LOSS) __________________ | | | | | | |
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