Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 13, Problem 31C
CASE 12-31 Integrative Case: Relevant Costs; Pricing LO12-1, LO12-4
Wesco Incorporated's only product is a combination fertilizer weedier called GrowNWeed. GrowNWeed is sold nationwide to retail nurseries and garden stores.
Zwinger Nursery plans to sell a similar fertilizer/weedkiller compound through its regional nursery chain under its own private label. Zwinger does not have manufacturing facilities of its own, so it has asked Wesco (and several other companies) to submit a bid for manufacturing and delvenng a 20,000-pound order of the private brand compound to Zwiger. While the chemical composition of the Zwiger compound differs from that of GrowNWeed, the maufacturing processes are very similar.
The Zwiger compound would be produced in 1,000-pound lots. Each lot would require 25 direct labor-hours and the fllowing chemicals:
| Chemicals | Quantity in Pounds |
| AG-5........................................................ | 300 |
| KL-2........................................................ | 200 |
| CW-7....................................................... | 150 |
| DF-6........................................................ | 175 |
The first three chemicals (AG-5, KL-1 and CW-7) are all used in the production of GrowNWeed. DP-6 was used in another compound that Wesco discontinued several months ago. The supply of DF-6 that Wesco had on hand when the other compound was discontinued was not discarded. Wesco could sell its supply of DF-6 at the prevailing market price less $0.10 per pound selling and handling expenses.
Wesco also has on hand a chemical called BH-3, which was manufactured for use in another product that is no longer produced. BH-3, which cannot be used in GrowNWeed, can be substituted for AG-5 on a one-for-one basis without affecting the quality of the Zwinger compound. The BH-3 in inventory has a salvage value of
$600.
Inventory and cost data for the chemicals that can be used to produce the Zwinger compound are shown below:
| Pound in Inventory | Actual Price per Pound When Purchased | Current Market Price per Pound |
|
| Raw Material AG-5 |
18,000 |
$1.15 | $1.20 |
| KL-2 | 6,000 | $1.10 | $1.05 |
| CW-7 | 7,000 | $1.35 | $1.35 |
| DF-6 | 3,000 | $0.80 | $0.70 |
| BH-3 | 3,000 | $0.90 | (Salvage) |
The current direct labor wage rate is 114 per hour. The predetermined
Variable manufacturing overhead.................................................................... $3.00 per DLH
Fixed manufacturing overhead...................................................................... 10.50 per DLH
Combined predetermined overhead rate............................................................... $13.50 per DLH
Wesco's production manager reports that the present equipment and facilities are adequate to manufacture the Zwinger compound. Therefore, the order would have no effect on total fixed manufacturing overhead costs. However, Wesco is within 400 hours of its two-shift capacity this month. Any additional hours beyond the 400 hours must be done in overtime. If need be, the Zwinger compound could be produced on regular time by shifting a portion of GrowNWeed production to overtime. Wesco's direct labor wage rate for overtime is $21 per hour. There is no allowance for any overtime premium in the predetermined overhead rate.
Required:
1. Wesco has decided to submit a bid for the 20,000 pound order of Zwinger's new compoid. The order must be delivered by the end of the current mount Zwinger has indicated that this is a one-time order that will not be repeated. Calculate the lowest price that Wesco could bid for the order and still exactly cover its incremental
2. Refer to the original data. Assume that Zwinger Nursery plans to place regular orders for 20,000-pound lots of the new compound. Wesco expects the demand for GrowNWeed to remain strong. Therefore, the recurring orders from Zwinger would put Wesco over its two-shift capacity. However production could be scheduled so that 90% of each Zwinger order could be completed during regular hours. As another option, some GrowNWeed production could be sled temporarily to overtime so that the Zwinger orders could be produced on regular time. Current market prices are the best available estimates of future market prices.
Wesco's standard markup policy for new products is 40% of the full manufacturing cost, including fixed manufacturing overhead. Calculate the price that Wesco, Inc., would quote Zwinger Nursery for each 20,000 pound lot of the new compound, assuming that it is to be treated as a new product and this pricing policy is followed.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip bowls or buy them from an outside supplier?
Fixed overhead cost that can be eliminated if the bowls are purchased from the outside supplier
The variable selling cost of the Snack Buster
A)
Yes
Yes
B)
Yes
No
C)
No
Yes
D)
No
No
Multiple Choice
Choice A
Choice B
Choice C
Choice D
The Jabba Corporation manufactures the "Snack Buster" which consists of a wooden snack chip bowl with an attached porcelain dip bowl. Which of the following would be relevant in Jabba's decision to make the dip
bowls or buy them from an outside supplier?
A)
B)
C)
D)
Fixed overhead cost that can
be eliminated if the bowls
are purchased from the The variable selling cost of
outside supplier
the Snack Buster
Multiple Choice
O
O
O
O
Choice A
Choice B
Choice C
Choice D
Yes
Yes
No
No
Yes
No
Yes
No
Lockrite Security Company manufacturers home alarms. Currently, it is manufacturing one of its components at a total cost of $40, which includes fixed costs of $13 per unit. An outside provider of this component has offered to sell Lockrite the component for $29.
Provide a differential analysis of the outside purchase proposal. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
Differential Analysis
Make Component (Alternative 1) or Buy Component (Alternative 2)
MakeComponent(Alternative 1)
BuyComponent(Alternative 2)
DifferentialEffects(Alternative 2)
Unit costs:
Purchase price
Variable costs
Fixed costs
Total unit costs
$
Chapter 13 Solutions
Managerial Accounting
Ch. 13.A - EXERCISE 12A-1 Absorption Costing Approach to...Ch. 13.A - EXERCISE 12A-2 Customer Latitude and Pricing...Ch. 13.A - Prob. 3ECh. 13.A - Prob. 4ECh. 13.A - Prob. 5ECh. 13.A - EXERCISE 12A-6 Value-Based Pricing; Absorption...Ch. 13.A - Prob. 7ECh. 13.A - Prob. 8PCh. 13.A - Prob. 9PCh. 13.A - Prob. 10P
Ch. 13.A - Prob. 11PCh. 13.A -
PROBLEM 12A-12 Absorption Costing Approach to...Ch. 13.A - PROBLEM 12A-13 Value-Based Pricing LO12-10 The...Ch. 13 - Prob. 1QCh. 13 - Prob. 2QCh. 13 - Prob. 3QCh. 13 - Prob. 4QCh. 13 - “Variable costs and differential costs mean the...Ch. 13 - 12-6 "All future costs are relevant in decision...Ch. 13 - Prentice Company is considering dropping one of...Ch. 13 - Prob. 8QCh. 13 - 12-9 What is the danger in allocating common fixed...Ch. 13 - 12-10 How does opportunity cost enter into a make...Ch. 13 - 12-11 Give at least four examples of possible...Ch. 13 - 12-12 How will relating product contribution...Ch. 13 - Define the following terms: joint products, joint...Ch. 13 - 12-14 From a decision-making point of view, should...Ch. 13 - What guideline should be used in determining...Ch. 13 - Prob. 16QCh. 13 - Prob. 1AECh. 13 - Prob. 2AECh. 13 - Cane Company manufactures two products called...Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - Prob. 3F15Ch. 13 - Prob. 4F15Ch. 13 - Prob. 5F15Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - Prob. 7F15Ch. 13 -
Cane Company manufactures two products called...Ch. 13 - Prob. 9F15Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - Prob. 11F15Ch. 13 - Prob. 12F15Ch. 13 - (
Alpha ...Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 - (
Alpha Beta
$30
$...Ch. 13 -
EXERCISE 12-1 Identifying Relevant Costs...Ch. 13 -
EXERCISE 12-2 Dropping or Retaining a Segment...Ch. 13 -
EXERCISE 12-3 Make or Buy Decision LO12-3
Troy...Ch. 13 -
EXERCISE 12-4 Special Order Decision...Ch. 13 -
EXERCISE 12-5 Volume Trade-Off Decisions...Ch. 13 - Prob. 6ECh. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - (
$3.60
10.00
2.40
9.00
$25.00
)
EXERCISE 12-11...Ch. 13 - Prob. 12ECh. 13 - EXERCISE 12-13 Sell or Process Further Decision...Ch. 13 - en
r
Ch. 13 - Prob. 15ECh. 13 - (
$150
31
20
29
3
24
15
$272
$34
)
EXERCISE...Ch. 13 - Prob. 17ECh. 13 - Prob. 18PCh. 13 - PROBLEM 12-19 Dropping or Retaining a Segment...Ch. 13 -
PROBLEM 12-20 Sell or Process Further Decision...Ch. 13 - Prob. 21PCh. 13 - PROBLEM 12-22 Special Order Decisions LO12-4...Ch. 13 -
PROBLEM 12-23 Make or Buy Decision LO12-3
Silven...Ch. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 26PCh. 13 - Prob. 27PCh. 13 - Prob. 28PCh. 13 - CASE 12-29 Sell or Process Further Decision LO12-7...Ch. 13 -
CASE 12-30 Ethics and the Manager; Shut Dora or...Ch. 13 - CASE 12-31 Integrative Case: Relevant Costs;...Ch. 13 -
CASE 12-32 Make or Buy Decisions; Volume...Ch. 13 - Prob. 33C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Sell or Process Further Decisions Come-Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independently, a few are related, such as the company’s Grit 337 and its Sparkle silver polish. Grit 337 is a coarse cleaning powder with many industrial uses. It costs $1.60 a pound to make, and it has a selling price of $2.00 a pound. A small portion of the annual production of Grit 337 is retained in the factory for further processing. It is combined with several other ingredients to form a paste that is marketed as Sparkle silver polish. The silver polish sells for $4.00 per jar. This further processing requires one-fourth pound of Grit 337 per jar of silver polish. The additional direct variable costs involved in the processing of a jar of silver polish are: Overhead costs associated with processing the silver polish are: The production supervisor has no duties other than to oversee…arrow_forwardBollozos Afterlife Corporation's Division A manufactures and sells product Brand X, which is used in refrigeration systems. Per-unit variable manufacturing and selling costs amount to P20 and P5, respectively The Division can sell this item to external domestic customers for P36 or, alternatively, transfer the product to the company's Division B. Division B is currently purchasing a similar unit from Taiwan for P33. Assume use of the general transfer-pricing rule. •What is the most that the Division B would be willing to pay the Division A for one unit? • If Division A had excess capacity, what transfer price would the Division's management set? · If Division A had no excess capacity, what transfer price would the Divisions management set? If Division A had no excess capacity, what transfer price would the Divisions management set assuming that Division A was able to reduce the variable cost of internal transfers by P4 per unitarrow_forwardProblem 15-40 (Algo) Evaluate Profit Impact of Alternative Transfer Decisions (LO 15-2, 3) Amazon Beverages produces and bottles a line of soft drinks using exotic fruits from Latin America and Asia. The manufacturing process entails mixing and adding juices and coloring ingredients at the bottling plant, which is a part of Mixing Division. The finished product is packaged in a company-produced glass bottle and packed in cases of 24 bottles each. Because the appearance of the bottle heavily influences sales volume, Amazon developed a unique bottle production process at the company’s container plant, which is a part of Container Division. Mixing Division uses all of the container plant’s production. Each division (Mixing and Container) is considered a separate profit center and evaluated as such. As the new corporate controller, you are responsible for determining the proper transfer price to use for the bottles produced for Mixing Division. At your request, Container Division’s…arrow_forward
- Question 1.Good Dentist Ltd. produces three distinct products and sells them in bulk to smaller retailers. Itsmanagers are concerned that the company's profit is not as high as its competitors. They believethey fall in profits could be caused due to the company's uncompetitive selling price(s), for one ormore product, and losses on other products. Details of the company's costs and selling prices are asfollows:Product Dental Tool Kit Dental Whitening Kit Electric Toothbrush£ £ £Selling Price 14.00 40.00 50.00Direct CostsLabour 4.00 9.00 15.00Direct Material - nylon bristles 5.00Direct Material - other 3.00 21.00 15.00Total Direct Cost 7.00 30.00 35.00Units produced 4,000 5,000 7,000Labour hours 1 hour per unit 2 hour per unit 2 hour per unitCurrently the company uses the traditional method of allocating indirect overheads but isconsidering using the ABC method for increasing the accuracy. The company's indirect overheadsare as follows:£Depreciation 20,000Purchasing Expenses…arrow_forwardSpecial-Order Decision, Traditional Analysis, Qualitative Aspects Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. A national sporting goods chain recently submitted a special order for 4,000 pairs of weight-lifting gloves. Feinan Sports was not operating at capacity and could use the extra business. Unfortunately, the order’s offering price of $12.70 per pair was below the cost to produce them. The controller was opposed to taking a loss on the deal. However, the personnel manager argued in favor of accepting the order even though a loss would be incurred; it would avoid the problem of layoffs and would help maintain the community image of the company. The full cost to produce a pair of weight-lifting gloves is presented below. Direct materials $7.40 Direct labor 3.80 Variable overhead 1.60 Fixed overhead 3.10 Total $15.90 No variable selling or administrative expenses would be associated with the order. Non-unit-level activity…arrow_forwardDo not provide solution in imge format. and also do not provide plagarised content otherwise i dislike. The Heating Division of Indigo International produces a heating element that it sells to its customers for $47 per unit. Its unit variable cost is $22, and its unit fixed cost is $9. Top management of Indigo International would like the Heating Division to transfer 15,200 heating units to another division within the company at a price of $29. The Heating Division is operating at full capacity. Assume that the units being requested are special high-performance units, and the division's unit variable cost would be $24 (rather than $22). What is the minimum transfer price that the Heating Division should accept?Minimum transfer pricearrow_forward
- Homework i s w Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. Direct materials. Direct labor The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $2,023,500 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead here to search CINNAMON Management has determined that…arrow_forwardplease explain why the option is false and other options true in detail with full explanation Sing Manufacturing Company is considering an opportunity to outsource a four functioncalculator that the Company currently makes and sales. Even if the calculator is outsourced,Sing plans to continue to sell it. Also, Sing plans to continue production on other calculatormodels that are currently being made by the Company. The costs associated with making thefour function calculators include unit-level materials, labor, and overhead. In addition, thereis some facility-level overhead costs that are allocated to the product. Sing pays a 5% salcscommission on each calculator sold. Based on this information, indicate which of thefollowing statements is false.a. The materials cost is relevant to the outsourcing decision.b. The facility-level overhead cost is not relevant to the outsourcing decision.C. The sales commission is relevant to the outsourcing decision.d. It may be wise for Sing to…arrow_forwardPiedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an unacceptable number of customers. Data from the most recent period concerning these products appear below: Velcro Metal Nylon Annual sales volume 101,800 203,600 407,200 Unit selling price $ 1.65 $ 1.50 $ 0.85 Variable expense per unit $ 1.25 $ 0.70 $ 0.25 Contribution margin per unit $ 0.40 $ 0.80 $ 0.60 Total fixed expenses are $407,200 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $247,200 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely. The…arrow_forward
- Glide Behind Corporation manufactures and sells small cargo trailers. The Wheel Division creates parts that are both sold externally and transferred internally to the Assembly Division. Variable production costs of wheel set #102 are $80, and each set sells externally for $150. What would you recommend as the internal transfer price from the Wheel Division to the Assembly Division if a competitive external market exists for wheel set #102? Would your answer change if there were no external market this component? Why? What would the transfer price be if upper management required cost plus 25 percent as the transfer price?arrow_forwardPiedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. All three products are sold in highly competitive markets, so the company is unable to raise prices without losing an unacceptable number of customers. Data from the most recent period concerning these products appear below: Velcro Metal Nylon Annual sales volume 101,800 203,600 407,200 Unit selling price $ 1.65 $ 1.50 $ 0.85 Variable expense per unit $ 1.25 $ 0.70 $ 0.25 Contribution margin per unit $ 0.40 $ 0.80 $ 0.60 Total fixed expenses are $407,200 per period. Of the total fixed expenses, $20,000 could be avoided if the Velcro product is dropped, $80,000 if the Metal product is dropped, and $60,000 if the Nylon product is dropped. The remaining fixed expenses of $247,200 consist of common fixed expenses such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely. The…arrow_forwardOnawa Ltd manufactures a top-selling electronic spreadsheet product called Cell 123. Onawa is aboutto release version 8. It divides its customers into 2 groups: new customers and upgrade customers(those who previously purchased Cell 123, version 7 or earlier versions). Although the same physicalproduct is provided to each customer group, sizeable differences exist in selling prices and variablemarketing costs New customers Upgrade customers N$ N$ Selling price 210 120 Variable costs: Manufacturing (25) (25) Marketing (65) (15) The fixed costs of Cell 8 are N514 000 000. The planned ratio of new customers to upgrade customers isexpected to be 6:4 respectively requirement:a) Calculate Onawa Ltd individual break-even point both in units and sales revenue, assuming thatthe customers will come as planned.b) Ifthe planned sales mix is attained, calculate the operating income when 200 000 units are sold.c) The CVP analysis as any management tool has some limitations.…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Relevant Costing Explained; Author: Kaplan UK;https://www.youtube.com/watch?v=hnsh3hlJAkI;License: Standard Youtube License