E12-2 adjusted

Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors
own homes within the jackson County area. Three services are provided to seniors - home nursing, Meals On
housekeeping. In the home nursing program, nurses visit seniors on a regular basis to check on their genera
perform tests ordered by their physicians. Meals on Wheels delivers a hot meal once per day. The housekee
provides weekly housekeeping. Data on revenue and expenses for the past year follow:

Home Meals on House-

Total Nursing Wheels keeping
Revenues 900,000 260,000 400,000 240,000
Variable Expenses 490,000 120,000 210,000 160,000
Contribution Margin 410,000 140,000 190,000 80,000
Fixed Expenses:
Depreciation 68,000 8,000 40,000 20,000
Liability Insurance 42,000 20,000 7,000 15,000
Program administrators' salaries 115,000 40,000 38,000 37,000
General Admin OH* 180,000 52,000 80,000 48,000
Total fixed expenses 405,000 120,000 165,000 120,000
Net operating income (loss) 5,000 20,000 25,000 (40,000)
*allocated based on program revenues

The head administrator of Jackson County Senior Services is concerned about the organization's finances an
income of 5000 last year to be too small). They are considering discontinuing the housekeeping program.

The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipm
job. If the program was discontinued, the van would be donated to a charitable organization. Depreciation c
zero salvage value. None of the general admin OH would be avoided if housekeeping is dropped, but the lia
the salary of the program administrator can be avoided.

Should the housekeeping program be discontinued? Explain w/ computations.

With HK W/O HK No, it should not.
Revenues 240,000 0
Variable Expenses 160,000 0
Contribution Margin 80,000 0
Fixed Expenses:
Depreciation 20,000 20000
Liability Insurance 15,000 0
Program administrators' salaries 37,000 0
General Admin OH* 48,000 48,000
Total fixed expenses 120,000 68,000
Net operating income (loss) (40,000) (68,000)
o seniors who live in their
Meals On Wheels, and
ir general health and to
ousekeeping service

ances and considers the net

ogram.

ir equipment from job to

ciation charges assume
ut the liability insurance and
 E12-3 adjusted

Climate-Control, Inc., manufactures a variaety of heating and AC units. The company is currently manufactu
component parts. An outside supplier has offered to sell a themostat to CC for $20/unit. To evaluate this offe
gathered the following information relating to its own cost of producing the themostat internally:

15,000
Units per
Per Unit Year
Direct Materials 6 90,000
Direct Labor 8 120,000
Variable MOH 1 15,000
Fixed MOH, traceable* 5 75,000
Fixed MOH, common, but allocated 10 150,000
Total Cost 30 450,000
*40% supervisory salaries; 60% depreciation of special equipment (no resale value)

Assuming that the company has no alternative use for the facilities now being used to produce
should the outside supplier's offer be accepted? Show all computations.

Make Buy
Outside purchase price 300,000 No, they
Direct Materials 90,000 should not
Direct Labor 120,000 accept the
Variable MOH 15,000 offer.
Fixed MOH, traceable* 75,000 45,000 ?
Fixed MOH, common, but allocated 150,000 150,000
Total Cost 450,000 495,000

Suppose that if the thermostats were purchased, CC could use the freed up capacity to launch a
The segment margin of the new product would be $65,000 per year. Should CC accept the offer
thermostats from the outside supplier for $20 each? Show computations.

Make Buy
Outside purchase price 300,000 Yes, they
should
Direct Materials 90,000
accept the
Direct Labor 120,000 offer.
Variable MOH 15,000
Fixed MOH, traceable* 75,000 45,000 ?
Fixed MOH, common, but allocated 150,000 150,000
Savings!!! (Money In) - (65,000)
Total Cost 450,000 430,000
nufacturing all of its own
this offer, CC, Inc., has

oduce the thermostat,

aunch a new product.

e offer to buy the
 E12-4

Miyamoto Jewelers is considering a special order for 20 handcrafted gold bracelets to be given as gifts to me
wedding party. The normal selling price of a gold bracelet is $189.95 and its unit product cost is $149 as sh

Per Unit
Direct Materials 84
Direct Labor 45
MOH 20
Total Cost 149

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced
However, $4 of the overhead is variable with respect to the # of bracelets produced. The customer who is in
special bracelet order would like special filigree applied to the bracelets. This filigree would require addition
$2/bracelet and would also require acquisition of a special tool costing $250 that would have no other use o
order is completed. This order would have no effect on the company's regular sales and the order could be f
company's existing capacity without affecting any other order.

What effect would accepting the order have on the company's net income if a special price of $1
per bracelet for this order? Should the special order be accepted at this price?
Per Unit 20
Incremental Revenue 169.95 3399
Incremental Costs:
Variable Costs:
DM 84 1680
DL 45 900
Variable MOH 4 80
Special Material 2 40
Total Variable Costs 135 2700
Fixed Costs:
Special Mold 12.5 250
Total incremental cost 147.5 2950
Incremental Net Operating Income 22.45 449
iven as gifts to members of a
cost is $149 as shown below:

welry is produced in any given period.

customer who is interested in the
d require additional materials costing
ve no other use once the special
e order could be fulfilled using the

pecial price of $169.95 is offered

 E12-5
Outdoor Luggage Inc. makes high-end hard-sided luggage for sports equipment. Data concerning three of th
company's most popular models appear below:

Fishing
Ski Guard Golf Guard Guard
Selling Price per unit 200 300 255
Variable Cost per unit 60 140 55
Plastic injection molding machine
processing time required to produce one
unit 2 min 5 min 4 min
Pounds of plastic pellets per unit 7 pounds 4 pounds 8 pounds

1. The total time available on the plastic injection molding machine is the constraint in the prod
process. Which product would be the most profitable use of this constraint? Which product wou
least profitable use of this constraint?
Ski Golf Fishing
SPPU 200 300 255
- VCPU 60 140 55
CMPU 140 160 200
/ Constraint 2 5 4
Total 70 32 50

2. A severe shortage of plastic pellets has required the company to cut back its porduction so m
the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the
available pounds of plastic pellets. Which product would be most profitable? least profitable?
Ski Golf Fishing
SPPU 200 300 255
- VCPU 60 140 55
CMPU 140 160 200
/ Constraint 7 4 8
Total 20 40 25
rning three of the

int in the production

h product would be the

orduction so much that

nstraint is the total
t profitable?
 E12-7 adjusted

Solex Company manufactures 3 products from a common input in a joint processing operation. Joint process
the split-off point total $100,000 per year. The company allocates these costs to the joint products on the ba
total sales value at the split-off point. These sales values are as follows: product X: $50,000; product Y: $90,
product Z: $60,000.

Each product may be sold at the split-off point or processed further. Additional processing requires no specia
additional processing costs and the sales value after further processing for each product (on an annual basi
below:

Additional Sales Value after

Processing Further
Product Costs Processing
X 35,000 80,000
Y 40,000 150,000
Z 12,000 75,000

Which product (s) should be sold at the split-off point and which product (s) should be processe
Show computations.
X Y Z
SV after processing 80,000 150,000 75,000
SV at split-off 50,000 90,000 60,000
Incremental Reve 30,000 60,000 15,000
Cost of processing 35,000 40,000 12,000
Profit from processing (5,000) 20,000 3,000

E12-13 adjusted
Morrell Company produces several products from processing krypton, a rare mineral. Material and processin
$30,000 per ton, 1/3 of which are allocated to the product merifulon. The merifulon produced from a ton of k
either be sold at the split-off point, or processed further at a cost of $13,000 and then sold for $60,000. The
merifulon at the split-off point is $40,000.

Should merifulon be processed further or sold at the split off point?

Merifulon
SV after processing 60,000
SV at split-off 40,000
Incremental Reve 20,000
Cost of processing 13,000
Profit from processing 7,000
 Joint processing costs up to
ucts on the basis of their
oduct Y: $90,000; and

ires no special facilities. The

n annual basis) are shown

be processed further?

and processing costs total

rom a ton of krypton can
$60,000. The sales value of
 E12-11
Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this level of
per unit for part S-6 is:

Per Unit
Direct Materials 3.60
Direct Labor 10.00
Variable MOH 2.40
Fixed MOH 9.00
Total Cost 25.00

An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 per part. If
accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another compan
rental of $80,000. However, Han Products has determined that 2/3 of the fixed MOH being applied to part S-
even if part S-6 were purchased from an outside supplier.

Prepare computations showing how much profits will increase or decrease if the outside supplie
accepted.
 e. At this level of activity, the cost

or $21 per part. If Han Products

o another company at an annual
applied to part S-6 would continue

e outside supplier's offer is

 E12-9

Delta Company produces a single product. The costs of producing and selling a single unit of this product at
current activity level of 60,000 units per month are:

Per Unit
Direct Materials 5.10
Direct Labor 3.80
Variable MOH 1.00
Fixed MOH 4.20
Variable Selling/Admin Exp 1.50
Fixed Selling/Admin Exp 2.40
Total Cost 18.00

The normal selling price is $21 per unit. The company's capacity is 75,000 units per month. An order has be
a potential customer overseas for 15,000 units at a price of $14.00 per unit. This order would not affect regu

If the order is accepted, by how much will monthly profits increase or decrease? (the order will
company's total fixed costs)
oduct at the company's

r has been received from

ffect regular sales.

der will not change the