54 A company that currently produces final product A is considering stopping processing earlier in the production process and selling the intermediate product on the market. The final product sells for $100 per unit, whereas the firm believes it can sell the partially processed intermediate product for $75 per unit. The firm sells 1,000 units per quarter and faces a total finished processing cost of $10,000 per quarter after split-off. Should the firm sell the intermediate good or the final good? The intermediate good, because final good sales decrease profits by $15,000 O The final good, because final good sales increase profits by $25,000 The intermediate good, because final good sales decrease profits by $25,000 The final good, because final good sales increase profits by $15,000

54 A company that currently produces final product A is considering stopping processing earlier in the production process and selling the intermediate product on the market. The final product sells for $100 per unit, whereas the firm believes it can sell the partially processed intermediate product for $75 per unit. The firm sells 1,000 units per quarter and faces a total finished processing cost of $10,000 per quarter after split-off. Should the firm sell the intermediate good or the final good? The intermediate good, because final good sales decrease profits by $15,000 O The final good, because final good sales increase profits by $25,000 The intermediate good, because final good sales decrease profits by $25,000 The final good, because final good sales increase profits by $15,000

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 11E: Sell or process further Calgary Lumber Company incurs a cost of 315 per hundred board feet (hbf) in...

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Zena Technology sells arc computer printers for $55 per unit. Unit product costs are: A special order to purchase 15,000 arc printers has recently been received from another company and Zena has idle capacity to fill the order. Zena will incur an additional $2 per printer for additional labor costs due to a slight modification the buyer wants made to the original product. One-third of the manufacturing overhead costs is fixed and will be incurred no matter how many units are produced. When negotiating the price, what is the minimum selling price that Zena should accept for this special order?
Sell or Process Further, Basic Analysis Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow: The revenues from each product are as follows: Alpha, 100,000; Beta, 93,000; Gamma, 30,000; and Delta, 40,000. Management is considering processing Delta beyond the split-off point, which would increase the sales value of Delta to 75,000. However, to process Delta further means that the company must rent some special equipment that costs 15,400 per quarter. Additional materials and labor also needed will cost 8,500 per quarter. Required: 1. What is the operating profit earned by the four products for one quarter? 2. CONCEPTUAL CONNECTION Should the division process Delta further or sell it at split-off? What is the effect of the decision on quarterly operating profit?
Sell or process further Dakota Coffee Company produces Columbian coffee in batches of 7,500 pounds. The standard quantity of materials required in the process is 7,500 pounds, which cost 6.00 per pound. Columbian coffee can be sold without further processing for 9.80 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for 11.60 per pound. The processing into Decaf Columbian requires additional processing costs of 6,300 per batch. The additional processing will also cause a 5% loss of product due to evaporation. a. Prepare a differential analysis dated December 11 on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2). b. Should Dakota Coffee Company sell Columbian coffee or process further and sell Decaf Columbian? Explain. c. Determine the price of Decaf Columbian that would cause neither an advantage nor a disadvantage for processing further and selling Decaf Columbian.
Sell or process further Calgary Lumber Company incurs a cost of 315 per hundred board feet (hbf) in processing certain rough-cut lumber, which it sells for 440 per hbf. An alternative is to produce a finished cut at a total processing cost of 465 per hbf, which can be sold for 600 per hbf. Prepare a differential analysis dated March 15 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).
Sell at Split-Off or Process Further Eunice Company produces two products from a joint process. Joint costs are 70,000 for one batch, which yields 1,000 liters of germain and 4,000 liters of hastain. Germain can be sold at the split-off point for 24 or be processed further, into geraiten, at a manufacturing cost of 4,100 (for the 1,000 liters) and sold for 33 per liter. If geraiten is sold, additional distribution costs of 0.80 per liter and sales commissions of 10% of sales will be incurred. In addition, Eunices legal department is concerned about potential liability issues with geraitenissues that do not arise with germain. Required: 1. CONCEPTUAL CONNECTION Considering only gross profit, should germain be sold at the split-off point or processed further? 2. CONCEPTUAL CONNECTION Taking a value-chain approach (by considering distribution, marketing, and after-the-sale costs), determine whether or not germain should be processed into geraiten.
Thaler Company bought 26,000 of raw materials a year ago in anticipation of producing 5,000 units of a deluxe version of its product to be priced at 75 each. Now the price of the deluxe version has dropped to 35 each, and Thaler is now deciding whether to produce 1,500 units of the deluxe version at a cost of 48,000 or to scrap the project. What is the opportunity cost of this decision? a. 175,000 b. 375,000 c. 48,000 d. 26,000
Morris Industries manufactures and sells three products (AA, BB, and CC). The sales price and unit variable cost for the three products are as follows: Their sales mix s reflected as a ratio of 5:3:2. Annual fixed costs shared by the three products are $25,000 per year. What are total variable costs for Morris with their current product mix? Calculate the number of units of each product that will need to be sold in order for Morris to break even. What is their break-even point in sales dollars? Using an income statement format, prove that this is the break-even point.
Jansen Crafters has the capacity to produce 50,000 oak shelves per year and is currently selling 44,000 shelves for $32 each. Cutrate Furniture approached Jansen about buying 1,200 shelves for bookcases it is building and is willing to pay $26 for each shelf. No packaging will be required for the bulk order. Jansen usually packages shelves for Home Depot at a price of $1.50 per shell. The $1.50 per-shelf cost is included in the unit variable cost of $27, with annual fixed costs of $320.000. However, the $130 packaging cost will not apply in this case. The fixed costs will be unaffected by the special order and the company has the capacity to accept the order. Based on this information, what would be the profit if Jansen accepts the special order? A. Profits will decrease by $1,200. B. Profits will increase by $31,200. C. Profits will increase by $600. D. Profits will increase by $7,200.