Holmes Company has already spent $66,000 to harvest peanuts. Those peanuts can be sold as is for $71,500. Alternatively, Holmescan process further into peanut butter at an additional cost of $350,000. If Holmes processes further, the peanut butter can be sold for$500,000.(a) Prepare a sell as is or process further analysis of income effects.(b) Should Holmes sell as is or process further?(a) Sell or Process AnalysisRevenueCostsIncome(b) The company should:F1@2WF2#3ESell as is Process Further80F3MAR29$4RaF4%5< Prev0F5TSDF G4 of 11~ tv6F6Y&7F7Next >U8DIIFB19F9HH J KAF10

If there is an incremental income, then the company should process further. If there is incremental…

Answered: Holmes Company has already spent…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 7EA: Almond Treats manufactures various types of cereals that feature almonds. Acme Cereal Company has...

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Almond Treats manufactures various types of cereals that feature almonds. Acme Cereal Company has approached Almond Treats with a proposal to sell the company its top selling cereal at a price of $22,000 for 20,000 pounds. The costs shown are associated with production of 20,000 pounds of almond cereal: The manufacturing overhead consists of $2,000 of variable costs with the balance being allocated to fixed costs. Should Almond Treats make or buy the almond cereal?
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)
Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. Includes depreciation. The density gauge uses a subassembly that is purchased from an external supplier for 25 per unit. Each quarter, 2,000 subassemblies are purchased. All units produced are sold, and there are no ending inventories of subassemblies. Morrill is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: No significant non-unit-level costs are incurred. Morrill is considering two alternatives to supply the productive capacity for the subassembly. 1. Lease the needed space and equipment at a cost of 27,000 per quarter for the space and 10,000 per quarter for a supervisor. There are no other fixed expenses. 2. Drop the thickness gauge. The equipment could be adapted with virtually no cost and the existing space utilized to produce the subassembly. The direct fixed expenses, including supervision, would be 38,000, 8,000 of which is depreciation on equipment. If the thickness gauge is dropped, sales of the density gauge will not be affected. Required: 1. Should Morrill Company make or buy the subassembly? If it makes the subassembly, which alternative should be chosen? Explain and provide supporting computations. 2. Suppose that dropping the thickness gauge will decrease sales of the density gauge by 10 percent. What effect does this have on the decision? 3. Assume that dropping the thickness gauge decreases sales of the density gauge by 10 percent and that 2,800 subassemblies are required per quarter. As before, assume that there are no ending inventories of subassemblies and that all units produced are sold. Assume also that the per-unit sales price and variable costs are the same as in Requirement 1. Include the leasing alternative in your consideration. Now, what is the correct decision?
Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside suppliers at a cost of 1,350 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity and can produce the materials needed by the Instrument Division at a variable cost of 900 per unit. a. If a transfer price of 1,000 per unit is established and 75,000 units of materials are transferred, with no reduction in the Components Divisions current sales, how much would Ziegler Inc.s total operating income increase? b. How much would the Instrument Divisions operating income increase? c. How much would the Components Divisions operating income increase?
Holmes Company has already spent $56,000 to harvest peanuts. Those peanuts can be sold as is for $81,500. Alternatively, Holmes can process further into peanut butter at an additional cost of $390,000. If Holmes processes further, the peanut butter can be sold for $660,000.(a) Prepare a sell as is or process further analysis of income effects.(b) Should Holmes sell as is or process further? (a) Sell or Process Analysis Sell as is Process Further Revenue Costs Income (b) The company should: Process further
Cobe Company has manufactured 225 partially finished cabinets at a cost of $56,250. These can be sold as is for $67,500. Instead, the cabinets can be stained and fitted with hardware to make finished cabinets. Further processing costs would be $13,500, and the finished cabinets could be sold for $90,000.(a) Prepare a sell as is or process further analysis of income effects.(b) Should the cabinets be sold as is or processed further and then sold?
McPupper Steel has products that cost $10,500 to manufacture. The products can be sold as is for $13,000 or could be processed further for a cost of $2,100 and sold for $14,000. What would be the incremental profit or (loss) of processing the products further and selling them instead of selling them as is?
The Arthur Company manufactures kitchen utensils. The company is currently producing well below its full capacity. The Benton Company has approached Arthur with an offer to buy 25,000 utensils at $0.70 each. Arthur sells its utensils wholesale for $0.80 each; the average cost per unit is $0.78, of which $0.14 is fixed costs. If Arthur were to accept Benton's offer, what would be the increase in Arthur's operating profits?
Walter Farms has already spent $11,200 to harvest vegetables. The vegetables can be sold as is for $201,600. Instead, the company could incur further processing costs of $107,520 and process the vegetables into salsa. The resulting salsa can be sold for $282,240. The incremental income to sell the vegetables ‘as is’ is
Kobe Company has manufactured 200 partially finished cabinets at a cost of $102,000. These can be sold as is for $122,400. Instead, the cabinets can be stained and fitted with hardware to make finished cabinets. Further processing costs would be $24,500, and the finished cabinets could be sold for $163,200. If Kobe Company processes the cabinets further, incremental income is:
the lily corporation has 8,000 obsolate units of a product that are carried in inventory at a manyfacturing cost of 160,000. if the unit are remachined for 40,000, They could be sold for $72,000. Alternatively. the unit could be sold for scrap for $28,000. which alternative is more desirable and what are the total relevant costs for that alternative?
Cee Incorporated has some raw materials (Banana) that originally costs 35,000. This raw material remained unused and now only has a scrap value of 8,000 but if reworked at a cost of 2,000 to produce Banana Fritters it could be sold for 9,200. If the company chooses to rework the bananas, what is the incremental effect of this decision on the overall profit of the company?

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