Problem 1: Leno Company manufactures toasters. For the first 8 months of 2014, the company reported the following operating results while operating at 75% of plant capacity:
|
Sales (352,100 units)
|
$4,378,600
|
|
Cost of goods sold
|
2,599,000
|
|
Gross profit
|
1,779,600
|
|
Operating expenses
|
839,700
|
|
Net income
|
$939,900
|
Cost of goods sold was 67% variable and 33% fixed; operating expenses were 72% variable and 28% fixed.
In September, Leno Company receives a special order for 24,700 toasters at $7.8 each from Centro Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed operating expenses.
1. Prepare an incremental analysis for the special order.
Problem 2: Gibbs Company purchases sails and produces sailboats. It currently produces 1,274 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Gibbs purchases sails at $242.00 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $91.70 for direct materials, $87.00 for direct labor, and $100 for overhead. The $100 overhead is based on $78,460 of annual fixed overhead that is allocated using normal capacity.
The president of Gibbs has come to you for advice. "It would cost me $278.70 to make the sails," she says, "but only $242.00 to buy them. Should I continue buying them, or have I missed something?"
Prepare a per unit analysis of the differential costs.
Problem 3: Rachel Rey recently opened her own basketweaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Rachel has put together a variety of raw materials kits, each including materials at various stages of completion. Unfortunately, owing to space limitations, Rachel is unable to carry all varieties of kits originally assembled and must choose between two basic packages.
The basic introductory kits include undyed, uncut reeds (with dye included) for weaving one basket. This basic packages costs Rachel $14 and sells for $27. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kits the customer need only soak the reeds and weave the basket. Rachel is able to produce the second kit by using the basic materials included in the first kit and adding one hour of her own time, which she values at $26 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Rachel is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The Stage 2 kit sells for $36.
Prepare an incremental analysis for the Rachel's basketweaving shop.