Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
16th Edition
ISBN: 9780134642468
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 11.29E
Theory of constraints, throughput margin, relevant costs. The Denver Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information:
| Machining | Finishing | |
| Annual capacity | 120,000 units | 100,000 units |
| Annual production | 100,000 units | 100,000 units |
| Fixed operating costs (excluding direct materials) | $600,000 | $300,000 |
| Fixed operating costs per unit produced($600,000 ÷ 100,000; $300,000 ÷ 100,000) | $6 per unit | $3 per unit |
Each cabinet sells for $75 and has direct material costs of $35 incurred at the start of the machining operation. Denver has no other variable costs. Denver can sell whatever output it produces. The following requirements refer only to the preceding data. There is no connection between the requirements.
- 1. Denver is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,150 units. The annual cost of these jigs and tools is $35.000. Should Denver acquire these tools? Show your calculations.
Required
- 2. The production manager of the Machining Department has submitted a proposal to do faster setups that would increase the annual capacity of the Machining Department by 9,000 units and would cost $20,000 per year. Should Denver implement the change? Show your calculations.
- 3. An outside contractor offers to do the finishing operation for 10,000 units at $9 per unit, triple the $3 per unit that it costs Denver to do the finishing in-house. Should Denver accept the subcontractor’s offer? Show your calculations.
- 4. The Hammond Corporation offers to machine 5,000 units at $3 per unit, half the $6 per unit that it costs Denver to do the machining in-house. Should Denver accept Hammond’s offer? Show your calculations.
- 5. Denver produces 2,000 defective units at the machining operation. What is the cost to Denver of the defective items produced? Explain your answer briefly.
- 6. Denver produces 2,000 defective units at the finishing operation. What is the cost to Denver of the defective items produced? Explain your answer briefly.
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Chapter 11 Solutions
Horngren's Cost Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText - Access Card Package (16th Edition)
Ch. 11 - Prob. 11.1QCh. 11 - Define relevant costs. Why are historical costs...Ch. 11 - All future costs are relevant. Do you agree? Why?Ch. 11 - Distinguish between quantitative and qualitative...Ch. 11 - Describe two potential problems that should be...Ch. 11 - Variable costs are always relevant, and fixed...Ch. 11 - A component part should be purchased whenever the...Ch. 11 - Prob. 11.8QCh. 11 - Managers should always buy inventory in quantities...Ch. 11 - Management should always maximize sales of the...
Ch. 11 - Prob. 11.11QCh. 11 - Cost written off as depreciation on equipment...Ch. 11 - Managers will always choose the alternative that...Ch. 11 - Prob. 11.14QCh. 11 - Prob. 11.15QCh. 11 - Qualitative and quantitative factors. Which of the...Ch. 11 - Special order, opportunity cost. Chade Corp. is...Ch. 11 - Prob. 11.18MCQCh. 11 - Keep or drop a business segment. Lees Corp. is...Ch. 11 - Relevant costs. Ace Cleaning Service is...Ch. 11 - Disposal of assets. Answer the following...Ch. 11 - Relevant and irrelevant costs. Answer the...Ch. 11 - Multiple choice. (CPA) Choose the best answer. 1....Ch. 11 - Special order, activity-based costing. (CMA,...Ch. 11 - Make versus buy, activity-based costing. The...Ch. 11 - Inventory decision, opportunity costs. Best Trim,...Ch. 11 - Relevant costs, contribution margin, product...Ch. 11 - Selection of most profitable product. Body Image,...Ch. 11 - Theory of constraints, throughput margin, relevant...Ch. 11 - Closing and opening stores. Sanchez Corporation...Ch. 11 - Prob. 11.31ECh. 11 - Relevance of equipment costs. Janets Bakery is...Ch. 11 - Equipment upgrade versus replacement. (A. Spero,...Ch. 11 - Special order, short-run pricing. Diamond...Ch. 11 - Short-run pricing, capacity constraints. Fashion...Ch. 11 - International outsourcing. Riverside Clippers Corp...Ch. 11 - Relevant costs, opportunity costs. Gavin Martin,...Ch. 11 - Opportunity costs and relevant costs. Jason Wu...Ch. 11 - Opportunity costs. (H. Schaefer, adapted) The Wild...Ch. 11 - Make or buy, unknown level of volume. (A....Ch. 11 - Make versus buy, activity-based costing,...Ch. 11 - Prob. 11.42PCh. 11 - Product mix, special order. (N. Melumad, adapted)...Ch. 11 - Theory of constraints, throughput margin, and...Ch. 11 - Theory of constraints, contribution margin,...Ch. 11 - Closing down divisions. Ainsley Corporation has...Ch. 11 - Dropping a product line, selling more tours....Ch. 11 - Prob. 11.48PCh. 11 - Dropping a customer, activity-based costing,...Ch. 11 - Equipment replacement decisions and performance...
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