Muscat Inc. has been manufacturing its own Camera for its Mobile Phone. The company is currently operating at 100% of capacity. Variable manufacturing overhead cost is OMR 3 per unit. The direct materials and direct labor cost per unit to make the camera are OMR 4 and OMR 6, respectively, fixed cost is OMR 50,000. Normal production is 50,000 Mobile Phone per year. A supplier offers to make the Cameras at a price of OMR 13.50 per unit. If Muscat accepts the supplier's offer; all variable manufacturing costs will be eliminated, but the OMR 50,000 of fixed manufacturing overhead currently being charged to the Cameras will have to be absorbed by other products. what will be the effect on net income? if the productive capacity released by not making the Cameras could be used to produce income of R.O. 40,000 Select one: a. OMR 725,000 increase b. OMR 25,000 decrease c. OMR 15,000 increase d. None of the answers are correct e. OMR 15,000 decrease

Muscat Inc. has been manufacturing its own Camera for its Mobile Phone. The company is currently operating at 100% of capacity. Variable manufacturing overhead cost is OMR 3 per unit. The direct materials and direct labor cost per unit to make the camera are OMR 4 and OMR 6, respectively, fixed cost is OMR 50,000. Normal production is 50,000 Mobile Phone per year. A supplier offers to make the Cameras at a price of OMR 13.50 per unit. If Muscat accepts the supplier's offer; all variable manufacturing costs will be eliminated, but the OMR 50,000 of fixed manufacturing overhead currently being charged to the Cameras will have to be absorbed by other products. what will be the effect on net income? if the productive capacity released by not making the Cameras could be used to produce income of R.O. 40,000 Select one: a. OMR 725,000 increase b. OMR 25,000 decrease c. OMR 15,000 increase d. None of the answers are correct e. OMR 15,000 decrease

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter7: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 58P: Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and...

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Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling 40,000 shelves for $32 each. Martin Hardwoods has approached Shelby about buying 1,200 shelves for a new project and is willing to pay $26 each. The shelves can be packaged in bulk; this saves Shelby $1.50 per shelf compared to the normal packaging cost. Shelves have a unit variable cost of $27 with fixed costs of $350,000. Because the shelves dont require packaging, the unit variable costs for the special order will drop from $27 per shelf to $25.50 per shelf. Shelby has enough idle capacity to accept the contract. What is the minimum price per shelf that Shelby should accept for this special order?
Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A is made by Gent, with these per-unit costs in a month when 4.000 units were produced: Variable manufacturing overhead is applied at $1.00 per unit. The other $0.30 of overhead consists of allocated fixed costs. Gent will need 6,000 units of part A for the next years production. Cory Corporation has offered to supply 6,000 units of part A at a price of $7.00 per unit. It Gent accepts the offer, all of the variable costs and $1,200 of the fixed costs will be avoided. Should Gent Designs accept the offer from Cory Corporation?
Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are 12,960,000 per year. The total labor minutes available are 1,440,000. During the year, the cell was able to produce 0.6 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs. Required: 1. Compute the theoretical conversion cost per unit. 2. Compute the applied conversion cost per minute (the amount of conversion cost actually assigned to the product). 3. Discuss how this approach to assigning conversion cost can improve delivery time performance. Explain how conversion cost acts as a performance driver for on-time deliveries.
Remarkable Enterprises requires four units of part A for every unit of Al that it produces. Currently, part A is made by Remarkable, with these per-unit costs in a month when 4,000 units were produced: Variable manufacturing overhead is applied at $1.60 per unit. The other $0.50 of overhead consists of allocated fixed costs. Remarkable will need 8,000 units of part A for the next years production. Altoona Corporation has offered to supply 8,000 units of part A at a price of $8.00 per unit. If Remarkable accepts the offer, all of the variable costs and $2,000 of the fixed costs will be avoided. Should Remarkable accept the offer from Altoona Corporation?
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.
Variety Artisans has a bottleneck in their production that occurs within the engraving department. Arjun Naipul, the COO, is considering hiring an extra worker, whose salary will be $45,000 per year, to solve the problem. With this extra worker, the company could produce and sell 3,500 more units per year. Currently, the selling price per unit is $18 and the cost per unit is $5.85. Using the information provided, calculate the annual financial impact of hiring the extra worker.
Power Corp. makes 2 products: blades for table saws and blades for handsaws. Each product passes through the sharpening machine area, which is the chief constraint during production. Handsaw blades take 15 minutes on the sharpening machine and have a contribution margin per blade of $15. Table saw blades take 20 minutes on the sharpening machine and have a contribution margin per blade of $35. If it is assumed that Power Corp. has 5,000 hours available on the sharpening machine to service a minimum demand for each product of 4,000 units, how many of each product should be made?
Country Diner currently makes cookies for its boxed lunches. It uses 40,000 cookies annually in the production of the boxed lunches. The costs to make the cookies are: A potential supplier has offered to sell Country Diner the cookies for $0.85 each. If the cookies are purchased, 10% of the fixed overhead could be avoided. If Jason accepts the offer, what will the effect on profit be?
Reubens Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are: A potential supplier has offered to sell Reuben the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided, If Reuben accepts the offer, what will the effect on profit be?
Computador has a manufacturing plant in Des Moines that has the theoretical capability to produce 243,000 laptops per quarter but currently produces 91,125 units. The conversion cost per quarter is 7,290,000. There are 60,750 production hours available within the plant per quarter. In addition to the processing minutes per unit used, the production of the laptops uses 10 minutes of move time, 20 minutes of wait time, and 5 minutes of rework time. (All work is done by cell workers.) Required: 1. Compute the theoretical and actual velocities (per hour) and the theoretical and actual cycle times (minutes per unit produced). 2. Compute the ideal and actual amounts of conversion cost assigned per laptop. 3. Calculate MCE. How does MCE relate to the conversion cost per laptop?
Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals 146,000. Each door handle sells for 12 and has variable cost of 9; each trim kit sells for 8 and has variable cost of 5. Required: 1. What are the contribution margin per unit and the contribution margin ratio for door handles and for trim kits? 2. If Polaris sells 20,000 door handles and 40,000 trim kits, what is the operating income? 3. How many door handles and how many trim kits must be sold for Polaris to break even? 4. CONCEPTUAL CONNECTION Assume that Polaris has the opportunity to rearrange its plant to produce only trim kits. If this is done, fixed costs will decrease by 35,000, and 70,000 trim kits can be produced and sold. Is this a good idea? Explain.
Deuce Sporting Goods manufactures a high-end model tennis racket. The company’s forecasted income statement for the year, before any special orders, is as follows: Fixed costs included in the forecasted income statement are $400,000 in manufacturing cost of goods sold and $200,000 in selling expenses. A new client placed a special order with Deuce, offering to buy 1,000 tennis rackets for $100.00 each. The company will incur no additional selling expenses if it accepts the special order. Assuming that Deuce has sufficient capacity to manufacture 1,000 more tennis rackets, by what amount would differential income increase (decrease) as a result of accepting the special order? (Hint: First compute the variable cost per unit relevant to this decision.)