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10. Special-Order Decision, Services, Qualitative Aspects
Jason Rogers works full-time for UPS and runs a lawn-mowing service part-time after work during the warm months of April through October. Jason has two men working with him, each of whom is paid $6.00 per lawn mowing. Jason has 25 residential customers who contract with him for once-weekly lawn mowing during the months of May through September, and twice-per-month mowings during April and October. On average, Jason charges $42 per lawn mowed. Recently, LStar Property Management Services asked Jason to mow the lawn at each of its 29 rental houses every two weeks during the months of May through September. LStar has offered to pay $29 per lawn mowing, and would forego the lawn edging that normally takes Jason’s team about half of its regular mowing time. If Jason accepts the job, he can assign a one-man team to mow the rental house yards, and will have to buy an additional power lawn mower for about $370 used. Fuel to run the additional mower will be about $0.50 per yard.
1. If Jason accepts the special order, by how much will his income increase or decrease?
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- 11. Joan is moving from a one-bedroom apartment in one city to a similarapartment in another city. She has been quoted a flat fee for the truck rentaland has two estimates for wages of the movers she will hire depending on herneeds and when she moves. Determine the hourly rates. Weekday Move:3 hoursloading/unloading2 hourspacking/unpacking$480 total cost Weekend Move: 5 hoursloading/unloading2 hourspacking/unpacking$680 total cost A. $90 loading/unloading; $100 packing/unpackingB. $100 loading/unloading; $90 packing/unpackingC. $80 loading/unloading; $130 packing/unpackingD. $130 loading/unloading; $80 packing/unpacking3-46 CVP, alternative cost structures. Classical Glasses operates a kiosk at the local mall, sellingsunglasses for $30 each. Classical Glasses currently pays $1,000 a month to rent the space and pays twofull-time employees to each work 160 hours a month at $10 per hour. The store shares a manager with aneighboring kiosk and pays 50% of the manager’s annual salary of $60,000 and benefits of $12,000. Thewholesale cost of the sunglasses to the company is $10 a pair.1. How many sunglasses does Classical Glasses need to sell each month to break even?2. If Classical Glasses wants to earn an operating income of $5,300 per month, how many sunglasses doesthe store need to sell?3. If the store’s hourly employees agreed to a 15% sales-commission-only pay structure, instead of theirhourly pay, how many sunglasses would Classical Glasses need to sell to earn an operating incomeof $5,300?4. Assume Classical Glasses pays its employees hourly under the original pay structure, but is able topay the…Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 353,875 372,500 items Delivering order Number of orders 1,190,000 35,000 orders Handling complaints Number of complaints 40,500 150 complaints Total delivery cost $ 1,584,375 The intern selected two customers, who were frequent customers,…
- Alter's Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer's work site. Because not all customers take advantage of the delivery service option, ACH adds 10 percent to the cost of the products purchased to cover the delivery cost. A business intern spent the summer at ACH. The intern's assignment was to analyze the delivery service and recommend a better way to charge customers for using it. The intern, who had studied activity-based costing, identified the following activities and the data related to them: Activity Cost Driver Annual Cost Annual Driver Volume Picking order Number of items $ 330,750 367,500 items Delivering order Number of orders 942,500 32,500 orders Handling complaints Number of complaints 32,500 125 complaints Total delivery cost $ 1,305,750 The intern selected two customers, who were frequent customers,…P5-3A ABC -- A Service Application Grand Haven is a senior living community that offers a full range of services including independent living, assisted living, and skilled nursing care. The assisted living division provides residential space, meals, and medical services (MS) to its residents. The current costing system adds the cost of all of these services (space, meals, and MS) and divides by total resident days to get the cost per resident day for each month. Recognizing that MS tends to vary significantly among the residents. Grand Haven's accountant recommended that an ABC system be designed to calculate more accurately the cost of MS privided to residents. She decided that residents should be classified into four categories into four categories (A, B, C, D) based on the level of service. Two cost drivers being considered for measuring MS costs and number of assistance calls and number of assistant contacts. A contact is registered each time an assistance professional provides…Resource Supply and Usage, Special Order, Relevancy Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of $22,100 and is capable of processing as many as 6,150 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process 6,150 orders per year. The cost of each PC system is $1,300 per year. In addition to the salaries, Elliott spends $26,568 for forms, postage, and other supplies (assuming 24,600 purchase orders are processed). During the year, 24,000 orders were processed. Required: 1. Which of the resources associated with purchasing can be classified as flexible resources? Forms, Postage and Supplies Which of the resources associated with purchasing can be classified as committed resources? PC system and clerks 2. Compute the total activity availability, and break this into activity usage and unused activity. Activity availability: purchase orders…
- Cost Identification and Analysis, Cost Assignment, Income Statement Melissa Vassar has decided to open a printing shop. She has secured two contracts. One is a 5-year contract to print a popular regional magazine. This contract calls for 5,000 copies each month. The second contract is a 3-year agreement to print tourist brochures for the state. The state tourist office requires 10,000 brochures per month. Melissa has rented a building for 1,400 per month. Her printing equipment was purchased for 40,000 and has a life expectancy of 20,000 hours with no salvage value. Depreciation is assigned to a period based on the hours of usage. Melissa has scheduled the delivery of the products so that two production runs are needed. In the first run, the equipment is prepared for the magazine printing. In the second run, the equipment is reconfigured for brochure printing. It takes twice as long to configure the equipment for the magazine setup as it does for the brochure setup. The total setup costs per month are 600. Insurance costs for the building and equipment are 140 per month. Power to operate the printing equipment is strongly related to machine usage. The printing equipment causes virtually all the power costs. Power costs will run 350 per month. Printing materials will cost 0.40 per copy for the magazine and 0.08 per copy for the brochure. Melissa will hire workers to run the presses as needed (part-time workers are easy to hire). She must pay 10 per hour. Each worker can produce 20 copies of the magazine per printing hour or 100 copies of the brochure. Distribution costs are 500 per month. Melissa will receive a salary of 1,500 per month. She is responsible for personnel, accounting, sales, and productionin effect, she is responsible for administering all aspects of the business. Required: 1. What are the total monthly manufacturing costs? 2. What are the total monthly prime costs? What are the total monthly prime costs for the regional magazine? For the brochure? 3. What are the total monthly conversion costs? Suppose Melissa wants to determine monthly conversion costs for each product. Assign monthly conversion costs to each product using direct tracing and driver tracing whenever possible. For those costs that cannot be assigned using a tracing approach, you may assign them using direct labor hours. 4. Melissa receives 1.80 per copy of the magazine and 0.45 per brochure. Prepare an income statement for the first month of operations.A company uses charging rates to allocate service department costs to the using departments. The accountant compiled the following information on one of the service departments: If Department K plans to use 1,350 hours of the service departments service in the coming year, how much of the service departments cost is allocated to Department K? a. 3,375 b. 27,300 c. 26,325 d. 23,950Cost Definitions Luisa Giovanni is a student at New York University. To help pay her way through college, Luisa started a dog walking service. She has 12 client dogssix are walked on the first shift (6:30 A.M. and 5:00 P.M.), and six are walked on the second shift (7:30 A.M. and 6:00 P.M.). Last month, Luisa noted the following: 1. Purchase of three leashes at 10 each (she carries these with her in case a leash breaks during a walk). 2. Internet service cost of 40 a month. This enables her to keep in touch with the owners, bill them by email, and so on. 3. Dog treats of 50 to reward each dog at the end of each walk. 4. A heavy-duty raincoat and hat for 100. 5. Partway through the month, Luisas friend, Jason, offered her a chance to play a bit role in a movie that was shooting on location in New York City. The job paid 100 and would have required Luisa to be on location at 6:00 A.M. and to remain for 12 hours. Regretfully, Luisa turned it down. 6. The dog owners pay Luisa 250 per month per dog for her services. Required: 1. At the end of the month, how would Luisa classify her Internet payment of 40as a cost on the balance sheet or as an expense on the income statement? 2. CONCEPTUAL CONNECTION Which of the above items is an opportunity cost? Why? 3. What price is charged? What is Luisas total revenue for a month?
- Olin Company manufactures and distributes carpentry tools. Production of the tools is in the mature portion of the product life cycle. Olin has a sales force of 20. Salespeople are paid a commission of 7 percent of sales, plus expenses of 35 per day for days spent on the road away from home, plus 0.50 per mile. They deliver products in addition to making the sales, and each salesperson is required to own a truck suitable for making deliveries. For the coming quarter, Olin estimates the following: On average, a salesperson travels 6,000 miles per quarter and spends 38 days on the road. The fixed marketing and administrative expenses total 400,000 per quarter. Required: 1. Prepare an income statement for Olin Company for the next quarter. 2. Suppose that a large hardware chain, MegaHardware, Inc., wants Olin Company to produce its new SuperTool line. This would require Olin Company to sell 80 percent of total output to the chain. The tools will be imprinted with the SuperTool brand, requiring Olin to purchase new equipment, use somewhat different materials, and reconfigure the production line. Olins industrial engineers estimate that cost of goods sold for the SuperTool line would increase by 15 percent. No sales commission would be incurred, and MegaHardware would link Olin to its EDI system. This would require an annual cost of 100,000 on the part of Olin. MegaHardware would pay shipping. As a result, the sales force would shrink by 80 percent. Should Olin accept MegaHardwares offer? Support your answer with appropriate calculations.Jean and Tom Perritz own and manage Happy Home Helpers. Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase 25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory and no finished goods inventory; in other words, a cleaning is started and completed on the same day. Required: 1. Prepare a statement of cost of services sold in good form. 2. How does this cost of services sold statement differ from the cost of goods sold statement for a manufacturing firm?Carl cleans offices. He has the following buildings to clean every day: building A, which is 12,500 square feet; building B. which is 24,500 square feet; building C, which is 10,500 square feet: and building D, which is 6,700 square feet. He is allowed 5 seconds per square foot. Each employee is allowed one 30-minute lunch per shirt. How many employees will he need to hire?
