Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Question
Chapter 27, Problem 1PB
1.
To determine
Comment on the purchasing policy of Company BM.
2.
To determine
Identify the additional costs involved with the bid of Company IFF beyond price, and the reasons for ignoring them.
3.
To determine
Compute the additional costs per pound for the bid of Company IFF, if the annual cost of money is 8%.
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Identifying relevant information and making pricing decisions
Sea Blue manufactures flotation vests in Charleston, South Carolina. Sea Blue’s contribution margin income statement for the month ended December 31, 2018, contains the following data:
Suppose Overboard wishes to buy 4,600 vests from Sea Blue. Sea Blue will not incur any variable Selling and administrative expenses on the special order. The Sea Blue plant has enough unused capacity to manufacture the additional vests. Overboard has offered $15 per vest, which is below the normal sales price of $19.
Requirements
Identify each cost in the income statement as either relevant or irrelevant to Sea Blue’s decision.
Prepare a differential analysis to determine whether Sea Blue should accept this special sales order.
Identify long-term factors Sea Blue should consider in deciding whether to accept the special sales order.
Special Order
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move's other customers, and existing sales will not be affected. Smooth Move normally produces 85,000 units but plans to produce and sell only 65,000 in the coming year. The normal sales price is $15 per unit. Unit cost information is as follows:
Direct materials
$3.10
Direct labor
2.25
Variable overhead
1.15
Fixed overhead
1.80
Total
$8.30
Suppose a customer wants to have its company logo affixed to each paperweight using a label. Smooth Move would have to purchase a special logo labeling machine that will cost $12,000. The machine will be able to label the 15,000 units and then it will be scrapped (with no further value). No other fixed overhead activities will be incurred. In addition, each special logo requires additional direct…
HD Hogg Motorcycle Company manufactures a variety of motorcycles. Hogg’s purchasingpolicy requires that the purchasing agents place each quarter’s purchasing requirementsout for bid. This is because the Purchasing Department is evaluated solely by its abilityto get the lowest purchase prices. The lowest cost bidder receives the order for the nextquarter (90 days). To make its motorcycles, Hogg requires 4,500 frames per quarter. Hoggreceived two frame bids for the third quarter, as follows:• Famous Frames, Inc.: $301 per frame. Delivery schedule: 50 frames per working day(90 days in the quarter).• Iron Horse Frames Inc.: $300 per frame. Delivery schedule: 4,500 (50 frames × 90 days)frames at the beginning of July to last for three months.Hogg accepted Iron Horse Frames Inc.’s bid because it was the low-cost bid.
Instructions1. Comment on Hogg’s purchasing policy.2. What are the additional (hidden) costs, beyond price, of Iron Horse FramesInc.’s bid? Why weren’t these costs…
Chapter 27 Solutions
Financial And Managerial Accounting
Ch. 27 - What is the benefit of the lean philosophy?Ch. 27 - What are some examples of non-value-added lead...Ch. 27 - Why is a product-oriented layout preferred by lean...Ch. 27 - How is setup time related to lead time?Ch. 27 - Why do lean manufacturers favor pull or make to...Ch. 27 - Why would a lean manufacturer strive to produce...Ch. 27 - How is supply chain management different from...Ch. 27 - Why does lean accounting result in fewer...Ch. 27 - Why do lean manufacturers use a raw and in process...Ch. 27 - Why is the direct labor cost category eliminated...
Ch. 27 - Prob. 11DQCh. 27 - What is the benefit of identifying non-value-added...Ch. 27 - In what ways can the cost of a process be...Ch. 27 - Lead time Blues Inc. manufactures jeans in the...Ch. 27 - Prob. 2BECh. 27 - Lean accounting The annual budgeted conversion...Ch. 27 - Cost of quality report A quality control activity...Ch. 27 - Process activity analysis Roen Company incurred an...Ch. 27 - Lean principles The chief executive officer (CEO)...Ch. 27 - Prob. 2ECh. 27 - Lean principles Rag Swag Inc. manufactures various...Ch. 27 - Lead time analysis Furry Friends Inc. manufactures...Ch. 27 - Reduce setup time Vernon Inc. has analyzed the...Ch. 27 - Compute lead time Jackson Fabricators Inc....Ch. 27 - Calculate lead time Williams Optical Inc. is...Ch. 27 - Suppy chain management The following is an excerpt...Ch. 27 - Employee involvement Quickie Designs Inc. uses...Ch. 27 - Lean principles for a restaurant The management of...Ch. 27 - Accounting issues in a lean environment Eon...Ch. 27 - Lean accounting Westgate Inc. uses a lean...Ch. 27 - Lean accounting Modern Lighting Inc. manufactures...Ch. 27 - Lean accounting Vintage Audio Inc. manufactures...Ch. 27 - Pareto chart Meagher Solutions Inc. manufactures...Ch. 27 - Cost of quality report A. Using the information in...Ch. 27 - Pareto chart for a service company Three Rivers...Ch. 27 - Cost of quality and value-added/non-value-added...Ch. 27 - Process activity analysis The Brite Beverage...Ch. 27 - Process activity analysis for a service company...Ch. 27 - Prob. 21ECh. 27 - Lean principles Bright Night, Inc., manufactures...Ch. 27 - Lead time Sound Tek Inc. manufactures electronic...Ch. 27 - Lean accounting Dashboard Inc. manufactures and...Ch. 27 - Pareto chart and cost of quality report for a...Ch. 27 - Prob. 1PBCh. 27 - Lead time Master Chef Appliance Company...Ch. 27 - Lean accounting Com-Tel Inc. manufactures and...Ch. 27 - Pareto chart and cost of quality report for a...Ch. 27 - Make a Decision Lean Performance for...Ch. 27 - Prob. 2MADCh. 27 - Prob. 3MADCh. 27 - Prob. 4MADCh. 27 - Ethics in Action In August, Lannister Company...Ch. 27 - Communication Ethan Fromme, the chief financial...Ch. 27 - Leese Inc. has the following quality financial...Ch. 27 - When measuring the cost of quality, the cost of...Ch. 27 - In measuring the cost of quality, which one of the...Ch. 27 - External failure costs include all of the...
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- Lean principles Bright Night, Inc., manufactures light bulbs. Its purchasing policy requires that the purchasing agents place each quarters purchasing requirements out for bid. This is because the Purchasing Department is evaluated solely by its ability to get the lowest purchase prices. The lowest bidder receives the order for the next quarter (90 working days). To make its bulb products, Bright Night requires 36,000 pounds of glass per quarter. Bright Night received two glass bids for the third quarter, as follows: Central Glass Company: 30.00 per pound of glass. Delivery schedule: 36,000 (400 lbs. x 90 days) pounds at the beginning of July to last for 3 months. Ithaca Glass Company: 30.20 per pound of glass. Delivery schedule: 400 pounds per working day (90 days in the quarter). Bright Night accepted Central Glass Companys bid because it was the low-cost bid. Instructions 1. Comment on Bright Nights purchasing policy. 2. What are the additional (hidden) costs, beyond price, of Central Glass Companys bid? Why werent these costs considered? 3. Considering only inventory financing costs, what is the additional cost per pound of Central Glass Companys bid if the annual cost of money is 8%? (Hint: Determine the average value of glass inventory held for the quarter and multiply by the quarterly interest charge, then divide by the number of pounds.)arrow_forwardTheta Theta Metalwork Inc. entered into an exclusive contract with an entity involved in franchising out artisanal candy stores. It will be producing a new design for a metal commercial rack based on the latter's needs. The latter is negotiating for a fixed-price on- demand ordering of the racks over five years. Theta gathered the following data shown in the image. How much should Theta sell each rack so that it can have a product profit margin of 28%? FIXED COSTS Year 1 Year 2 Year 3 Year 4 Year 5 ТОTALS Research and Design 200,000 P 30,000 P 230,000 Manufacturing 50,000 50,000 50,000 50,000 50,000 250,000 Distribution 20,000 20,000 20,000 20,000 20,000 100,000 Customer Service 80,000 50,000 30,000 30,000 20,000 210,000 Other incremental operating costs 25,000 175,000 P 25,000 25,000 25,000 25,000 125,000 ТОTALS 375,000 P 125,000 P 125,000 P 115,000 P 915,000 VARIABLE COSTS PER UNIT Manufacturing 500 P 450 450 P 450 P 450 Distribution 100 100 100 100 100 Customer Service 50 50 50 50…arrow_forwardIdentifying relevant information and making pricing decisions Nautical manufactures flotation vests in Tampa, Florida. Nautical’s contribution margin income statement for the month ended December 31, 2018, contains the following data: Suppose Water Works wishes to buy 4,800 vests from Nautical. Nautical will not incur any variable selling and administrative expenses on the special order. The Nautical plant has enough unused capacity to manufacture the additional vests. Water Works has offered $15 per vest, which is below the normal sales price of $19. Requirements Identify each cost in the income statement as either relevant or irrelevant to Nautical’s decision. Prepare a differential analysis to determine whether Nautical should accept this special sales order. Identity long—term factors Nautical should consider in deciding whether to accept the special sales order.arrow_forward
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