Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
6th Edition
ISBN: 9780134486857
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Chapter 25, Problem 26AP
1.
To determine
Diagram the Company O’s decision alternatives.
2.
To determine
Find out the sunk cost and state whether the sunk costs are relevant to Company O’s decision.
3.
To determine
Identify whether the Company O should sell the petroleum distillate or process it into cleaner fluid and show the expected net revenue difference between the two alternatives.
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Smith Chemical has spent $244,000 to refine 73,000 gallons of acetone, which can be sold for $2.40 a gallon.
Alternatively, Smith Chemical can process the acetone further. This processing will yield a total of 58,000 gallons of
lacquer thinner that can be sold for $3.30 a gallon. The additional processing will cost $0.55 per gallon of lacquer thinner.
To sell the lacquer thinner, Smith Chemical must pay shipping of $0.18 a gallon and administrative expenses of $0.10 a
gallon on the thinner.
Requirements
1. Identify the sunk cost. Is the sunk cost relevant to Smith's decision? Why or why not?
2. Should Smith sell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference
between the two alternatives.
.....
Requirement 1. Identify the sunk cost. Is the sunk cost relevant to Smith's decision? Why or why not?
The
is a sunk cost that
differ between alternatives of selling as is or processing
further. Consequently, this sunk cost of
is
to the sell or…
Castillo Petroleum has spent $208,000 to refine 64,000 gallons of petroleum distillate, which can be sold for $6.40 per gallon. Alternatively, Castillo can process the distillate further and produce 54,000
gallons of cleaner fluid. The additional processing will cost $1.80 per gallon of distillate. The cleaner fluid can be sold for $9.00 per gallon. To sell cleaner fluid, Castillo must pay a sales commission of $0.14
per gallon and a transportation charge of $0.19 per gallon.
Read the requirements.
Requirement 1. Fill in the diagram for Castillo's alternatives.
Joint costs
of producing
64,000
gallons of
petroleum
distillate
The
Cost of
processing
further
Revenues from
selling as is
Requirement 2. Identify the sunk cost. Is the sunk cost relevant to Castillo's decision?
is a sunk cost that
Revenues from
processing
further
Decision:
Expected revenue from selling 64,000 gallons of petroleum distillate
Expected revenue from selling 54,000 gallons of cleaner fluid
Additional costs of…
Noble Chemical has spent $240,000 to refine 71,000 gallons of acetone, which can be sold for $2.30 a gallon. Alternatively,
Noble Chemical can process the acetone further. This processing will yield a total of 59,000 gallons of lacquer thinner that can be sold for $3.20 a gallon. The additional processing will cost $0.85 per gallon of lacquer thinner. To sell the lacquer thinner, Noble Chemical must pay shipping of $0.24 a gallon and administrative expenses of $0.12 a gallon on the thinner.
Requirements:
1.
Identify the sunk cost. Is the sunk cost relevant to Noble's decision? Why or why not?
2.
Should Noblesell the acetone as is or process it into lacquer thinner? Show the expected net revenue difference between the two alternatives.
Chapter 25 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Ch. 25 - Doherty Company is considering replacing the...Ch. 25 - Prob. 2TICh. 25 - Prob. 3TICh. 25 - Prob. 4TICh. 25 - Prob. 5TICh. 25 - Prob. 6TICh. 25 - Thomas Company makes a product that regularly...Ch. 25 - Prob. 8TICh. 25 - McCollum Company manufactures two products. Both...Ch. 25 - Prob. 10TI
Ch. 25 - Grimm Company makes decorative wedding cakes. The...Ch. 25 - Prob. 12TICh. 25 - Prob. 1QCCh. 25 - Prob. 2QCCh. 25 - Which of the following costs are irrelevant to...Ch. 25 - When making decisions, managers should consider a....Ch. 25 - When pricing a product or service, managers must...Ch. 25 - When companies are price-setters, their products...Ch. 25 - Prob. 7QCCh. 25 - In deciding which product lines to emphasize when...Ch. 25 - When making outsourcing decisions, which of the...Ch. 25 - When deciding whether to sell as is or process a...Ch. 25 - List the four steps in short-term decision making....Ch. 25 - Prob. 2RQCh. 25 - What makes information irrelevant to decision...Ch. 25 - What are sunk costs? Give an example.Ch. 25 - Prob. 5RQCh. 25 - Prob. 6RQCh. 25 - What are the two keys in short-term decision...Ch. 25 - What questions should managers answer when setting...Ch. 25 - Prob. 9RQCh. 25 - What is target pricing? Who uses it?Ch. 25 - What does the target full product cost include?Ch. 25 - What is cost-plus pricing? Who uses it?Ch. 25 - What questions should managers answer when...Ch. 25 - When completing a differential analysis, when are...Ch. 25 - Prob. 15RQCh. 25 - What questions should managers answer when...Ch. 25 - Prob. 17RQCh. 25 - What is a constraint?Ch. 25 - Prob. 19RQCh. 25 - What is the decision rule concerning products to...Ch. 25 - Prob. 21RQCh. 25 - Prob. 22RQCh. 25 - What questions should managers answer when...Ch. 25 - What questions should managers answer when...Ch. 25 - Prob. 25RQCh. 25 - Prob. 26RQCh. 25 - You are trying to decide whether to trade in your...Ch. 25 - Skiable Acres operates a Rocky Mountain ski...Ch. 25 - Refer to details about Skiable Acres from Short...Ch. 25 - Prob. 4SECh. 25 - StoreAll produces plastic storage bins for...Ch. 25 - Suppose Roasted Pepper restaurant is considering...Ch. 25 - Priscilla Smiley manages a fleet of 250 delivery...Ch. 25 - Heavenly Dessert processes cocoa beans into cocoa...Ch. 25 - Dan Jacobs, production manager for GreenLife,...Ch. 25 - Suppose the Baseball Hall of Fame in Cooperstown,...Ch. 25 - Prob. 11ECh. 25 - Prob. 12ECh. 25 - Top managers of Video Avenue are alarmed by their...Ch. 25 - Refer to Exercise E25-13. Assume that Video Avenue...Ch. 25 - Prob. 15ECh. 25 - Moore Company sells both designer and moderately...Ch. 25 - Prob. 17ECh. 25 - Cool Systems manufactures an optical switch that...Ch. 25 - Refer to Exercise E25-18. Cool Systems needs...Ch. 25 - NaturalMaid processes organic milk into plain...Ch. 25 - Sea Blue manufactures flotation vests in...Ch. 25 - Prob. 22APCh. 25 - Members of the board of directors of Security...Ch. 25 - Brinn, located in Port St. Lucie, Florida,...Ch. 25 - Snow Ride manufactures snowboards. Its cost of...Ch. 25 - Prob. 26APCh. 25 - Prob. 27BPCh. 25 - Green Thumb operates a commercial plant nursery,...Ch. 25 - Members of the board of directors of Security Team...Ch. 25 - Prob. 30BPCh. 25 - Prob. 31BPCh. 25 - Elm Petroleum has spent 204,000 to refine 61,000...Ch. 25 - Prob. 34PCh. 25 - The Boeing Company manufacturers many different...Ch. 25 - Prob. 1EI
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