A study has been conducted to determine if one of the departments in Your Company should be discontinued. The contribution margin in the department is $50,000 per year. Fixed expenses charged to the department are $65,000 per year. It is estimated that $40,000 of these fixed expenses could be eliminated if the department is discontinued. Discontinuing this product would result in a $120,000 increase in the contribution margin of other product lines. If the department is discontinued, what would be the annual change in the company's overall net operating
Q: [The following information applies to the questions displayed below.] Astro Co. sold 20,000 units of…
A:
Q: Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of…
A: Payback period is an amount of time required to recover initial investment. Payback period =Initial…
Q: The Knot manufactures men’s neckwear at its Spartanburg plant. The Knot is considering implementing…
A: Just-in-time (JIT) manufacturing system: Just-in-time manufacturing system is an approach to…
Q: [The tollowing Astro Co. sold 20,800 units of its only product and incurred a $56,672 loss (ignoring…
A: Break even point (BEP) refers to that volume of operation where, there is no profit or loss to an…
Q: You work for a logistics company, which considers to invest in a computerized system to improve…
A: Here, Initial cost = $90,000 Additional expenses = $25,000 Savings in operating cost = $65,000…
Q: The company's total general company overhead would be unaffected by this decision. Required: 1.…
A: In accounting we have to make decisions like buy or make a particular asset. This includes…
Q: Tidwell, Inc., has two plants that manufacture a line of wheelchairs. One is located in Dallas, and…
A: Target costing is a process of determining the maximum cost that can be allowed for a product to be…
Q: Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of…
A: Calculation of Annual net cash inflow: Product A Product B Annual Sales revenue $380,000…
Q: AA company that has a definite plan for expansion will need to hire and train 60 new engineers per…
A: Cost refers to the amount which is paid to purchase something, whether goods or service. Costs can…
Q: You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic…
A: The cash position that an entity has after making all cash payments and making required investments…
Q: Durham Corporation has a Motor Division that produces motors of various types. The company's Machine…
A: Motor division's minimum acceptable price would be = Variable cost expected to be incurred on the…
Q: Rivera Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for…
A: As the question has more than 3 sub-parts, the first 3 subparts are answered. If you want the answer…
Q: An automobile company needs to decide of outsourcing shafts or producing shafts in the company. If…
A: An automobile needs to decide of outsourcing or producing shafts in the company. Outsourcing shafts…
Q: Hemisphere, LLC is planning to outsource its 51-person information technology (IT) department to…
A: Present Value: The present value is the value of the sum received at time 0 or the current period.…
Q: Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of…
A: PI stands for Profitability index which states the relationship among the costs as well as the…
Q: Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of…
A: Net present value method: Net present value method is the method which is used to compare the…
Q: Mr. Jones also considers improving the production efficiency of his company. He realizes if he rents…
A: working note : note: (variable) manufacturing overhead / (fixed ) manufacturing overhead cost…
Q: Lou Barlow, a divisional manager for Sage Company, has an opportunity to manufacture and sell one of…
A: Profitability index compares the present value of inflow and present value of outflow of a project.…
Q: Required: 3. Calculate the internal rate of return for each product. 4. Calculate the…
A: Internal Rate of return is that Rate of Return upon which Present Value of Cash Inflows is Equal to…
Q: Wendell's Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new…
A: Note: Since we only answer up to 3 sub-parts, we’ll answer the first3. Please resubmit the question…
Q: 4. In addition to the data given previously, assume that the machine will have a $12,630 salvage…
A: Capital Budgeting Techniques are used to choose the most profitable investment alternative. Based on…
Q: Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new…
A: The cost of machine is $18,600 Annual cost savings $3800
Q: At RIM, Sharpton Corporation, the engraving department is a bottleneck and the company is…
A: Relevant cost per unit = Direct material + Direct labor +Variable overhead = $2.75 + 1.00 + 0.25…
Q: You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic…
A: Initial Investment $ 2,50,00,000.00 Sales revenue $ 3,00,00,000.00 Cost of goods sold $…
Q: Management is trying to decide whether or not to build a new factory. They believe sales are…
A: Here, Revenues for 1st year = $85,000 Revenues for 2nd year = $70,000 Annual expenses = $30,000…
Q: If the department is discontinued, what would be the annual change in the company's overall net…
A: Any organization can have departments that work as either profit centers and cost centers . It is…
Q: The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the…
A: Financial advantage (disadvantage) from discontinuing the production and sale of Doombugs = Saving…
Q: You are a manager at Percolated Fiber, which is considering expanding its operations in synthetic…
A: a. Calculate the free cash flow as follows: Formulas:
Q: Tidwell, Inc., has two plants that manufacture a line of wheelchairs. One is located in Dallas, and…
A: 1) Current cost per unit = 31,680,000 /20,000 = 1,584 Current profit per unit = 1,782 – 1,584= 198…
Q: Wendell's Donut Shoppe is investigating the purchase of a new $48,300 donut-making machine. The new…
A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…
Q: Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new…
A: 1.Determine the total annual cash inflow.
Q: The management of a private hospital is considering automating some back office functions. This…
A: Net Present Value (NPV) refers to the difference between the present value of cash inflows and cash…
Q: Question 3, 5, and 6, please. Thank you
A: Cost-volume profit analysis is a tool that helps in decision making by establishing a relationship…
Q: Fedori Corporation has a Parts Division that does work for other Divisions in the company as well as…
A: This question is related to transfer pricing. Transfer pricing method of accounting is generally…
Q: Alisha May, division manager of Shotgun Inc., was debating the merits of launching a new product.…
A: SOLUTION- RETURN ON INVESTMENT IS A METRIC USED TO UNDERSTAND THE PROFITABILITY OF AN INVESTMENT .…
Q: Wendell’s Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new…
A: The IRR is a statistical calculation that is used to calculate the feasibility of future…
Q: Astro Co. sold 20,000 units of its only product and incurred a $50,000 loss (ignoring taxes) for the…
A: Hey, since there are multiple requirements posted, we will answer first three requirements. If you…
Q: Paul Company is contemplating to close the operations of the club Due to heavy rains brought by La…
A: The shutdown point seems to be the stage where a merchant believes that there really is no advantage…
Q: Searching for ways to cut costs and increase profit, one of the industrial engineers at Home Comfort…
A: a. The computation of PW is done below: The formulation for computing the above values as follows:…
Q: A company intends to install new management software for its warehouse. The software will cost…
A: The benefit in the first year is the total reduction through reduction in staff as well as general…
Q: Hemisphere Electric Coop (HEC) is planning to outsource its 51-person information technology (IT)…
A: PW is a net benefit’s value in today which will generate in future. Discounting technique is used to…
Q: Fusion Metals Company needs a new manager for its Cutting Department. It is considering closing its…
A: Department closing decision is financially viable when, the net income of the overall organization…
Q: An engineering firm has identified five ways to cut costs in its main office. Only one of the…
A: "Since you have posted a question with multiple subparts, we will solve first there subparts for…
Discontinuing a department means that department is no longer operated, it is either shut down or
divested and the assets are sold off.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- At Stardust Gems, a faux gem and jewelry company, the setting department is a bottleneck. The company is considering hiring an extra worker, whose salary will be $67,000 per year, to ease the problem. Using the extra worker, the company will be able to produce and sell 9,000 more units per year. The selling price per unit is $20. The cost per unit currently is $15.85 as shown: What is the annual financial impact of hiring the extra worker for the bottleneck process?Bienestar, Inc., has two plants that manufacture a line of wheelchairs. One is located in Kansas City, and the other in Tulsa. Each plant is set up as a profit center. During the past year, both plants sold their tilt wheelchair model for 1,620. Sales volume averages 20,000 units per year in each plant. Recently, the Kansas City plant reduced the price of the tilt model to 1,440. Discussion with the Kansas City manager revealed that the price reduction was possible because the plant had reduced its manufacturing and selling costs by reducing what was called non-value-added costs. The Kansas City manufacturing and selling costs for the tilt model were 1,260 per unit. The Kansas City manager offered to loan the Tulsa plant his cost accounting manager to help it achieve similar results. The Tulsa plant manager readily agreed, knowing that his plant must keep pacenot only with the Kansas City plant but also with competitors. A local competitor had also reduced its price on a similar model, and Tulsas marketing manager had indicated that the price must be matched or sales would drop dramatically. In fact, the marketing manager suggested that if the price were dropped to 1,404 by the end of the year, the plant could expand its share of the market by 20 percent. The plant manager agreed but insisted that the current profit per unit must be maintained. He also wants to know if the plant can at least match the 1,260 per-unit cost of the Kansas City plant and if the plant can achieve the cost reduction using the approach of the Kansas City plant. The plant controller and the Kansas City cost accounting manager have assembled the following data for the most recent year. The actual cost of inputs, their value-added (ideal) quantity levels, and the actual quantity levels are provided (for production of 20,000 units). Assume there is no difference between actual prices of activity units and standard prices. Required: 1. Calculate the target cost for expanding the Tulsa plants market share by 20 percent, assuming that the per-unit profitability is maintained as requested by the plant manager. 2. Calculate the non-value-added cost per unit. Assuming that non-value-added costs can be reduced to zero, can the Tulsa plant match the Kansas City per-unit cost? Can the target cost for expanding market share be achieved? What actions would you take if you were the plant manager? 3. Describe the role that benchmarking played in the effort of the Tulsa plant to protect and improve its competitive position.Boxer Production, Inc., is in the process of considering a flexible manufacturing system that will help the company react more swiftly to customer needs. The controller, Mick Morrell, estimated that the system will have a 10-year life and a required return of 10% with a net present value of negative $500,000. Nevertheless, he acknowledges that he did not quantify the potential sales increases that might result from this improvement on the issue of on-time delivery, because it was too difficult to quantify. If there is a general agreement that qualitative factors may offer an additional net cash flow of $150,000 per year, how should Boxer proceed with this Investment?
- Suppose that a company is spending 60,000 per year for inspecting, 30,000 for purchasing, and 40,000 for reworking products. A good estimate of nonvalue-added costs would be a. 70,000. b. 130,000. c. 40,000. d. 90,000. e. 100,000.A company is spending 70,000 per year for inspecting, 60,000 per year for purchasing, and 56,000 per year for reworking products. What is a good estimate of non-value-added costs? a. 126,000 b. 70,000 c. 56,000 d. 130,000Javier Company has sales of 8 million and quality costs of 1,600,000. The company is embarking on a major quality improvement program. During the next three years, Javier intends to attack failure costs by increasing its appraisal and prevention costs. The right prevention activities will be selected, and appraisal costs will be reduced according to the results achieved. For the coming year, management is considering six specific activities: quality training, process control, product inspection, supplier evaluation, prototype testing, and redesign of two major products. To encourage managers to focus on reducing non-value-added quality costs and select the right activities, a bonus pool is established relating to reduction of quality costs. The bonus pool is equal to 10 percent of the total reduction in quality costs. Current quality costs and the costs of these six activities are given in the following table. Each activity is added sequentially so that its effect on the cost categories can be assessed. For example, after quality training is added, the control costs increase to 320,000, and the failure costs drop to 1,040,000. Even though the activities are presented sequentially, they are totally independent of each other. Thus, only beneficial activities need be selected. Required: 1. Identify the control activities that should be implemented, and calculate the total quality costs associated with this selection. Assume that an activity is selected only if it increases the bonus pool. 2. Given the activities selected in Requirement 1, calculate the following: a. The reduction in total quality costs b. The percentage distribution for control and failure costs c. The amount for this years bonus pool 3. Suppose that a quality engineer complained about the gainsharing incentive system. Basically, he argued that the bonus should be based only on reductions of failure and appraisal costs. In this way, investment in prevention activities would be encouraged, and eventually, failure and appraisal costs would be eliminated. After eliminating the non-value-added costs, focus could then be placed on the level of prevention costs. If this approach were adopted, what activities would be selected? Do you agree or disagree with this approach? Explain.
- Poleski Manufacturing, which maintains the same level of inventory at the end of each year, provided the following information about expenses anticipated for next year: The selling price of Poleskis single product is 16. In recent years, profits have fallen and Poleskis management is now considering a number of alternatives. Poleski wants to have a net income next year of 250,000, but expects to sell only 120,000 units unless some changes are made. The president of Poleski has asked you to calculate the companys projected net income (assuming 120,000 units are sold) and the sales needed to achieve the companys net income objective for next year. Also, compute Poleskis contribution margin per unit, contribution margin ratio, and break-even point for next year. The worksheet CVP has been provided to assist you. Note that the data from the problem have already been entered into the Data Section of the worksheet.Cadre, Inc., sells a single product with a selling price of $120 and variable costs per unit of $90. The companys monthly fixed expenses are $180,000. What is the companys break-even point in units? What is the companys break-even point in dollars? Prepare a contribution margin income statement for the month of October when they will sell 10,000 units. How many units will Cadre need to sell in order to realize a target profit of $300,000? What dollar sales will Cadre need to generate in order to realize a target profit of $300,000? Construct a contribution margin income statement for the month of August that reflects $2,400,000 in sales revenue for Cadre, Inc.Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
- 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. 26,000Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided that post-purchase costs are important in design decisions. Last month, a proposal for a new product was presented to management. The total market was projected at 200,000 units (for the two-year period). The proposed selling price was 130 per unit. At this price, market share was expected to be 25 percent. The manufacturing and logistics costs were estimated to be 120 per unit. Upon reviewing the projected figures, Brian Metcalf, president of Nico, called in his chief design engineer, Mark Williams, and his marketing manager, Cathy McCourt. The following conversation was recorded: BRIAN: Mark, as you know, we agreed that a profit of 15 per unit is needed for this new product. Also, as I look at the projected market share, 25 percent isnt acceptable. Total profits need to be increased. Cathy, what suggestions do you have? CATHY: Simple. Decrease the selling price to 125 and we expand our market share to 35 percent. To increase total profits, however, we need some cost reductions as well. BRIAN: Youre right. However, keep in mind that I do not want to earn a profit that is less than 15 per unit. MARK: Does that 15 per unit factor in preproduction costs? You know we have already spent 100,000 on developing this product. To lower costs will require more expenditure on development. BRIAN: Good point. No, the projected cost of 120 does not include the 100,000 we have already spent. I do want a design that will provide a 15-per-unit profit, including consideration of preproduction costs. CATHY: I might mention that post-purchase costs are important as well. The current design will impose about 10 per unit for using, maintaining, and disposing our product. Thats about the same as our competitors. If we can reduce that cost to about 5 per unit by designing a better product, we could probably capture about 50 percent of the market. I have just completed a marketing survey at Marks request and have found out that the current design has two features not valued by potential customers. These two features have a projected cost of 6 per unit. However, the price consumers are willing to pay for the product is the same with or without the features. Required: 1. Calculate the target cost associated with the initial 25 percent market share. Does the initial design meet this target? Now calculate the total life-cycle profit that the current (initial) design offers (including preproduction costs). 2. Assume that the two features that are apparently not valued by consumers will be eliminated. Also assume that the selling price is lowered to 125. a. Calculate the target cost for the 125 price and 35 percent market share. b. How much more cost reduction is needed? c. What are the total life-cycle profits now projected for the new product? d. Describe the three general approaches that Nico can take to reduce the projected cost to this new target. Of the three approaches, which is likely to produce the most reduction? 3. Suppose that the Engineering Department has two new designs: Design A and Design B. Both designs eliminate the two nonvalued features. Both designs also reduce production and logistics costs by an additional 8 per unit. Design A, however, leaves post-purchase costs at 10 per unit, while Design B reduces post-purchase costs to 4 per unit. Developing and testing Design A costs an additional 150,000, while Design B costs an additional 300,000. Assuming a price of 125, calculate the total life-cycle profits under each design. Which would you choose? Explain. What if the design you chose cost an additional 500,000 instead of 150,000 or 300,000? Would this have changed your decision? 4. Refer to Requirement 3. For every extra dollar spent on preproduction activities, how much benefit was generated? What does this say about the importance of knowing the linkages between preproduction activities and later activities?Youngstown Construction plans to discontinue its rooting segment. Last year, this segment generated a contribution margin of $65.000 and incurred $70.000 in fixed costs. Discontinuing the segment will allow the company to avoid half of the fixed costs. What effect is expected to occur to the companys overall profit? A. a decrease of $5,000 B. a decrease of $30,000 C. a decrease of $5,000 D. an increase of $30,000
