Survey Of Accounting
5th Edition
ISBN: 9781259631122
Author: Edmonds, Thomas P.
Publisher: Mcgraw-hill Education,
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Chapter 13, Problem 28P
Problem 6-30A Comprehensive problem including special order, outsourcing, and segment elimination decisions
Bain Corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The company’s chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment’s operating activities. The relevant range for the production and sale of the calculators is between 30,000 and 60,000 units per year.
| Revenue (40,000 units × $10.80) | $432,000 |
| Unit-level variable costs | |
| Materials cost (40,000 × $2.70) | (108,000) |
| Labor cost (40,000 × $1.20) | (48,000) |
| Manufacturing |
(48,000) |
| Shipping and handling (40,000 × $0.30) | (12,000) |
| Sales commissions (40,000 × $1.20) | (48,000) |
| Contribution margin | 168,000 |
| Fixed expenses | |
| Advertising costs | (24,000) |
| Salary of production supervisor | (72,000) |
| Allocated companywide facility-level expenses | (96,000) |
| Net loss $ | (24,000) |
Required (Consider each of the requirements independently.)
- a. A large discount store has approached the owner of Bain about buying 5,000 calculators. It would replace The Math Machine’s label with its own logo to avoid affecting Bain’s 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 $6.60 per calculator. Based on quantitative factors alone, should Bain accept the special order? Support your answer with appropriate computations. Specifically, by what amount would the special order increase or decrease profitability?
- b. Bain has an opportunity to buy the 40,000 calculators it currently makes from a reliable competing manufacturer for $6.72 each. The product meets Bain’s quality standards. Bain could continue to use its own logo, advertising program, and sales force to distribute the products. Should Bain buy the calculators or continue to make them? Support your answer with appropriate computations. Specifically, how much more or less would it cost to buy the calculators than to make them? Would your answer change if the volume of sales were increased to 60,000 units?
- c. Because the calculator division is currently operating at a loss, should it be eliminated from the company’s operations? Support your answer with appropriate computations. Specifically, by what amount would the segment’s elimination increase or decrease profitability?
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Problem 1:
The IT corporation produces and markets two types of electronic calculators: Model 11 and
model 12. The following data were gathered on activities last month.
Model 11
Model 12
Sales in units...
Selling price per unit..
Variable production costs per unit..
Traceable fixed production costs..
Variable selling expenses per unit..
Traceable fixed selling expenses.......
Allocated division administrative expenses.. $50,000
Prepare a segmented income statement in the contribution format for last month
5,000
$50
$10
$100,000
$5
5,000
3,000
$100
$26
$150,000
$6
7,500
$60,000
Question 2
XYZ Company produces and sells only two products since year 2000. Data concerning those products for March 2020 appear below:
Product A
Product B
March Sales
$25,000
$27,000
March Variable costs
$7,000
$8,600
March Fixed costs
$32,860
Required:
As a Senior Manager at XYZ Company, your General Manager asked you to determine the total sales of the company in $ for product A and for product B that should be achieved to cover both variable and fixed costs for the month of March by using the company's contribution margin.
The level of competition in the market was acceptable and manageable by the Company. In March, 2020, a new potential competitor is doing a market research to decide on entering the market with a product similar to Product A. The General Manager asked for your advice if the company should shift the sales mix toward Product B with no change in total sales (as the sales of product B is more than product…
CP Analysis of Multiple Products
Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg
expects to sell 80,000 regular models and 16,000 deluxe models. A segmented income statement for the two products is as follows:
Regular Model
Deluxe Model
Total
Sales
$12,000,000
$10,880,000
$22,880.000
Less: Variable costs
7.200.000
6,528,000
13,728,000
Contribution margin
$4,800,000
$4,352,000
$9,152,000
Less: Direct fixed costs
1,200.000
960,000
2,160,000
Segment margin
$3,600,000
$3,392,000
$6,992,000
Less: Common fixed costs
1,386,400
Operating income
$5,605,600
Required:
1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit
Regular models
X units
Deluxe models
X units
2. Using information only from the total column of the income…
Chapter 13 Solutions
Survey Of Accounting
Ch. 13 - Prob. 1QCh. 13 - Prob. 2QCh. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Prob. 7QCh. 13 - Prob. 8QCh. 13 - Prob. 9QCh. 13 - Prob. 10Q
Ch. 13 - Prob. 11QCh. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - Prob. 15QCh. 13 - Prob. 16QCh. 13 - Prob. 17QCh. 13 - Prob. 18QCh. 13 - Prob. 19QCh. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Exercise 6-5AOpportunity costs Norman Dowd owns...Ch. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Exercise 6-11AEstablishing price for an...Ch. 13 - Exercise 6-12AOutsourcing decision with...Ch. 13 - Exercise 6-13AOutsourcing decision affected by...Ch. 13 - Prob. 14ECh. 13 - Exercise 6-15ASegment elimination decision Dudley...Ch. 13 - Prob. 16ECh. 13 - Exercise 6-17AAsset replacementopportunity cost...Ch. 13 - Prob. 18ECh. 13 - Exercise 6-19A Asset replacement decision Mead...Ch. 13 - Exercise 6-20A Asset replacement decision Kahn...Ch. 13 - Exercise 6-21A Annual versus cumulative data for...Ch. 13 - Problem 6-23A Context-sensitive relevance Required...Ch. 13 - Problem 6-24A Context-sensitive relevance...Ch. 13 - Problem 6-25A Effect of order quantity on special...Ch. 13 - Problem 6-26A Effects of the level of production...Ch. 13 - Problem 6-28A Eliminating a segment Western Boot...Ch. 13 - Effect of activity level and opportunity cost on...Ch. 13 - Problem 6-30A Comprehensive problem including...Ch. 13 - Prob. 29PCh. 13 - ATC 6-1 Business Application Case Analyzing...Ch. 13 - ATC 6-2 Group Assignment Relevance and cost...Ch. 13 - Prob. 3ATCCh. 13 - Prob. 4ATCCh. 13 - Prob. 5ATC
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