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APPLY THE CONCEPTS: Calculate differential cost in a sell-or-process-further decision

Pandar Corporation buys cedar logs. It removes the bark and cuts each log into cedar planks. It can sell each plank for $40. The cost to produce each plank is $12. PandarCorporation has the opportunity to use these planks to make cedar canoes. It takes 10 cedar planks to make one cedar canoe and requires an additional $1,200 in production costs. A cedar canoe can be sold for $1,850. The differential cost of making one cedar canoe is $Select1,2001,3205301,450Correct 1 of Item 2.

APPLY THE CONCEPTS: Calculate differential income in a sell-or-process-further decision

Complete the table to compare the effects of selling at the split-off point or processing further. In the Differential Effect on Income (Canoe) column. Enter all amounts as positive numbers except for a net loss.

	Alternatives				Differential Effect Increase/Decease (Canoe)
	Ten Planks		One Canoe
Sales	$		$		$
Costs
Net income (loss)	$		$		$

Based on the analysis, Pandar Corporation should Selectprocess planks into canoessell the planksCorrect 10 of Item 3. If Pandar processes the planks into canoes, its overall income will SelectincreasedecreaseCorrect 11 of Item 3 by $ per canoe.

APPLY THE CONCEPTS: Calculate differential costs in a special order decision

Blanche Corporation currently produces and sells 15,000 soccer balls per month at a price of $15. All sales are made in the United States. Its factory is capable of producing 20,000 soccer balls per month.

A European retail store has recently contacted Blanche Corporation and offered to buy 4,000 soccer balls at $10 each. If the offer is accepted, the sale is not expected to have any effect on the current level of sales or the current selling price in the United States.

The accounting department has provided the cost data per soccer ball.

Direct materials	$2.00
Direct labor	3.25
Variable factory overhead	1.75
Shipping	1.50
Packaging	0.25
Selling commission	1.00
Fixed factory overhead	2.25
Total cost	$12.00

Blanche Corporation has excess manufacturing capacity to produce the components without incurring additional fixed factory overhead. Since the European retailer has approached Blanche Corporation about the sale, no selling commission will be paid on this sale. What per-unit manufacturing cost should be used in determining whether Coname Corporation should accept the special order? Select$12$8.75$11$7Correct 1 of Item 2

APPLY THE CONCEPTS: Calculate differential income in a special order decision

Complete the table to compare the per-unit cost analysis for the special order. Enter all amounts as positive numbers except for a net loss. If an amount is zero, enter "0". The cost data for the special order is given below:

Direct materials	$2.00
Direct labor	3.25
Variable factory overhead	1.75
Shipping	1.50
Packaging	0.25
Selling commission	1.00
Fixed factory overhead	2.25
Total cost	$12.00

	Alternatives						Differential
	Accept			Reject			Effect on Income
	(Complete all columns on a per-unit basis.)
Revenues	$			$			$
Direct materials
Direct labor
Variable factory overhead
Shipping
Packaging
Selling commission
Fixed factory overhead
Income/loss	$			$			$

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