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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Chapter 5, Problem 54P
1.
To determine
Explain the manner in which activity based costing system operates.
2.
To determine
Ascertain, whether Company ME should continue to emphasize the royal model and phase out the nowa model.
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The Cool Can Company manufactures drink koozies 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 Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 82,000 units
but plans to produce and sell only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows:
Direct materials
$3.10
Direct labor
Variable overhead
Fixed overhead
Total
1.50
1.00
1.80
$7.40
However, assume that Cool Can plans to produce and sell 70,000 units in the coming year (rather than the originally anticipated 65,000 units).
Required:
1. Using Excel (or some other spreadsheet software tool), calculate the amount by which total operating income increases or decreases if the order is accepted.
Decrease
-84,000 X
2. Conceptual Connection: Should Cool Can accept the special order when sales at the regular price are expected to…
The Cool Can Company manufactures drink koozies 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 Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 82,000 units but plans to produce and sell
only 65,000 in the coming year. The normal sales price is $12 per unit. Unit cost information is as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total
$3.10
1.50
1.00
1.80
$7.40
If Cool Can accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.
Required:
Download Excel spreadsheet
1. What are the alternatives for Cool Can?
2. Conceptual Connection: Should Cool Can accept the special order?
By how much will operating income increase or decrease if the order is accepted?
3. Conceptual Connection: Briefly explain the significance of the statement in the exercise…
The Cool Can Company manufactures drink koozies 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 Cool Can's other customers, and existing sales will not be affected. Cool Can normally produces 95,000 units but plans to produce and sell only 65,000 in the coming year. The normal sale
price is $16 per unit. Unit cost information is as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead.
Total
In addition, assume that the new customer also wants to have its company logo affixed to each koozie using a label. Cool Can 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 materials of $0.20
$3.10
2.50
1.15
1.00
$8.55…
Chapter 5 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 5 - Briefly explain how a traditional, volume-based...Ch. 5 - Prob. 2RQCh. 5 - Explain how an activity-based costing system...Ch. 5 - What are cost drivers? What is their role in an...Ch. 5 - List and briefly describe the four broad...Ch. 5 - How can an activity-based costing system alleviate...Ch. 5 - Prob. 7RQCh. 5 - How is the distinction between direct and indirect...Ch. 5 - Explain the concept of a pool rate in...Ch. 5 - Briefly explain two factors that tend to result in...
Ch. 5 - List three factors that are important in selecting...Ch. 5 - Prob. 12RQCh. 5 - Explain why a new product-costing system may be...Ch. 5 - Prob. 14RQCh. 5 - Are activity-based costing systems appropriate for...Ch. 5 - Explain why maintaining their medical-services...Ch. 5 - How could the administration at Immunity Medical...Ch. 5 - Prob. 18RQCh. 5 - Prob. 19RQCh. 5 - What is meant by the term activity analysis? Give...Ch. 5 - Prob. 21RQCh. 5 - What is meant by customer-profitability analysis?...Ch. 5 - Explain the relationship between customer profit...Ch. 5 - What is a customer profitability profile?Ch. 5 - Describe the use of practical capacity in a TDABC...Ch. 5 - Tioga Company manufactures sophisticated lenses...Ch. 5 - Urban Elite Cosmetics has used a traditional cost...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Prob. 31ECh. 5 - Refer to the description given for Wheelco, Inc....Ch. 5 - Prob. 33ECh. 5 - United Technologies Corporation implemented...Ch. 5 - Redwood Company sells craft kits and supplies to...Ch. 5 - Non-value-added costs occur in nonmanufacturing...Ch. 5 - Since you have always wanted to be an...Ch. 5 - Prob. 39ECh. 5 - Prob. 42ECh. 5 - Prob. 44ECh. 5 - Borealis Manufacturing has just completed a major...Ch. 5 - Ontario, Inc. manufactures two products, Standard...Ch. 5 - Kitchen Kings Toledo plant manufactures three...Ch. 5 - Prob. 48PCh. 5 - Maxey Sons manufactures two types of storage...Ch. 5 - Prob. 50PCh. 5 - John Patrick has recently been hired as controller...Ch. 5 - The controller for Tulsa Medical Supply Company...Ch. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - World Gourmet Coffee Company (WGCC) is a...Ch. 5 - Knickknack, Inc. manufactures two products: Odds...Ch. 5 - Prob. 58PCh. 5 - Marconi Manufacturing produces two items in its...Ch. 5 - Gigabyte, Inc. manufactures three products for the...Ch. 5 - Refer to the new target prices for Gigabytes three...Ch. 5 - Prob. 62PCh. 5 - Prob. 63PCh. 5 - Midwest Home Furnishings Corporation (MHFC)...Ch. 5 - Fresno Fiber Optics, Inc. manufactures fiber optic...Ch. 5 - Refer to the information given in the preceding...Ch. 5 - Whitestone Company produces two subassemblies,...Ch. 5 - Morelli Electric Motor Corporation manufactures...Ch. 5 - Refer to the product costs developed in...Ch. 5 - Morelli Electric Motor Corporations controller,...
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