Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 14, Problem 55P
Miami Industries received an order for a piece of special machinery from Jay Company. Just as Miami completed the machine, Jay Company declared bankruptcy, defaulted on the order, and forfeited the 10 percent deposit paid on the selling price of $72,500.
Miami’s manufacturing manager identified the costs already incurred in the production of the special machinery for Jay Company as follows:
Another company, Kaytell Corporation, will buy the special machinery if it is reworked to Kaytell’s specifications. Miami Industries offered to sell the reworked machinery to Kaytell as a special order for $68,400. Kaytell agreed to pay the price when it takes delivery in two months. The additional identifiable costs to rework the machinery to Kaytell’s specifications are as follows:
A second alternative available to Miami’s management is to convert the special machinery to the standard model, which sells for $62,500. The additional identifiable costs for this conversion are as follows:
A third alternative for Miami Industries is to sell the machine as is for a price of $52,000. However, the potential buyer of the unmodified machine does not want it for 60 days. This buyer has offered a $7,000 down payment, with the remainder due upon delivery.
The following additional information is available regarding Miami’s operations.
- The sales commission rate on sales of standard models is 2 percent, while the rate on special orders is 3 percent.
- Normal credit terms for sales of standard models are 2/10, net/30. This means that a customer receives a 2 percent discount if payment is made within 10 days, and payment is due no later than 30 days after billing. Most customers take the 2 percent discount. Credit terms for a special order are negotiated with the customer.
- The allocation rates for manufacturing
overhead and fixed selling and administrative costs are as follows:
- Normal time required for rework is one month.
Required:
- Determine the dollar contribution each of the three alternatives will add to Miami Industries’ before-tax profit.
- If Kaytell makes Miami Industries a counteroffer, what is the lowest price Miami should accept for the reworked machinery from Kaytell? Explain your answer.
- Discuss the influence fixed
manufacturing-overhead cost should have on the sales price quoted by Miami Industries for special orders.
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Miami Industries received an order for a piece of special machinery from Jay Company. Just as Miami completed the machine, Jay Company declared bankruptcy, defaulted on the order, and forfeited the 10 percent deposit paid on the selling price of $72,500.Miami’s manufacturing manager identified the costs already incurred in the production of the special machinery for Jay Company as follows""
Direct material ........................................................................................................$ 16,600
Direct labor ............................................................................................... 21,400
Manufacturing overhead applied:
Variable...............................................................................$ 10,700
Fixed ........................................................................................5,350 16,050
Fixed selling and administrative…
Pan Corporation incurs costs of $1.8 million building a custom piece of machinery for one of its customers. The machine is 90% complete when Pan receives notice that the customer has declared bankruptcy. As a result, the customer is not able to accept delivery or pay anything for the machinery it ordered. Due to the custom design of the machine, there are no other potential buyers. Pan can sell the machine as scrap for $80,000 or it can redesign and complete the machine for $900,000, after which it could be sold for $1 million. Given the above information and assuming Pan's cost and revenue estimates pertaining to scrapping or rebuilding the machine are accurate, answer the following questions:
1. Costs irrelevant to this decision total $.
2. If Pan sells the machine as scrap, its incremental income will increase by $.
3. If Pan rebuilds and then sells the machine, its incremental income will increase by $.
Hancock Company is trying to make a decision as to whether it should purchase of a new piece of equipment. The invoice price of the equipment is $140,000 with an estimate of $4,000 in freight charges and installation costs are expected to be $6,000. The Company expects that the salvage value of the new equipment will be zero after a useful life of 5 years.
If the new machine is not purchased, the Company’s existing equipment could be retained and used for an additional 5 years. At that time, the salvage value of the existing equipment would be zero. If the new machine is purchased now, the existing machine would have to be scrapped.
The following is data regarding annual sales and expenses with and without the new machine:
Without the new machine, Hancock can sell 12,000 units of product annually at a per unit selling price of $100. If the new machine is purchased, the number of units produced and sold would increase by 10%, and the selling price would remain the same.…
Chapter 14 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 14 - Prob. 1RQCh. 14 - Describe the managerial accountants role in the...Ch. 14 - Distinguish between qualitative and quantitative...Ch. 14 - Prob. 4RQCh. 14 - A quantitative analysis enables a decision maker...Ch. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Is the book value of inventory on hand a relevant...Ch. 14 - Why might a manager exhibit a behavioral tendency...
Ch. 14 - Prob. 11RQCh. 14 - Prob. 12RQCh. 14 - Prob. 13RQCh. 14 - Prob. 14RQCh. 14 - Prob. 15RQCh. 14 - Briefly describe the proper approach for making a...Ch. 14 - Prob. 17RQCh. 14 - Are allocated joint processing costs relevant when...Ch. 14 - Briefly describe the proper approach to making a...Ch. 14 - What is meant by the term contribution margin per...Ch. 14 - How is sensitivity analysis used to cope with...Ch. 14 - There is an important link between decision making...Ch. 14 - List four potential pitfalls in decision making,...Ch. 14 - Why can unitized fixed costs cause errors in...Ch. 14 - Prob. 25RQCh. 14 - Prob. 26RQCh. 14 - Are the concepts underlying a relevant-cost...Ch. 14 - Prob. 28RQCh. 14 - Redo Exhibit 144 without the irrelevant data.Ch. 14 - Valley Pizzas owner bought his current pizza oven...Ch. 14 - Lamont Industries produces chemicals for the...Ch. 14 - Day Street Delis owner is disturbed by the poor...Ch. 14 - Prob. 35ECh. 14 - Intercontinental Chemical Company, located in...Ch. 14 - Intercontinentals special order also requires...Ch. 14 - Fusion Metals Company is considering the...Ch. 14 - Prob. 39ECh. 14 - Zytel Corporation produces cleaning compounds and...Ch. 14 - Duo Company manufactures two products, Uno and...Ch. 14 - Refer to the data given in the preceding exercise...Ch. 14 - Southern California Chemical Company manufactures...Ch. 14 - Kitchen Magician, Inc. has assembled the following...Ch. 14 - Prob. 45PCh. 14 - Prob. 46PCh. 14 - Tipton One-Stop Decorating sells paint and paint...Ch. 14 - Carpenters Mate, Inc. manufactures electric...Ch. 14 - Casting Technology Resources (CTR) has purchased...Ch. 14 - The Midwest Division of the Paibec Corporation...Ch. 14 - Prob. 51PCh. 14 - Prob. 52PCh. 14 - Upstate Mechanical, Inc. has been producing two...Ch. 14 - Chenango Industries uses 10 units of part JR63...Ch. 14 - Miami Industries received an order for a piece of...Ch. 14 - Prob. 56PCh. 14 - Ozark Industries manufactures and sells three...Ch. 14 - Prob. 58PCh. 14 - Deru Chocolate Company manufactures two popular...Ch. 14 - Prob. 60PCh. 14 - Prob. 61PCh. 14 - Bo Vonderweidt, the production manager for...Ch. 14 - Alberta Gauge Company, Ltd., a small manufacturing...
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