Assignment
1. The short-run differential costs of a product are $50. Fixed costs are $10 per unit based on 20,000 units produced during this period. The company has adequate capacity to accept a special order of 2,000 units. What is the minimum price that could be charged using the differential approach to pricing?
2. Company A manufactures adding machines. The company's capacity is 10,000 units per month; however, it currently is selling only 6,000 units per month. Company B has asked Company A to sell 2,000 adding machines at $50 each. Normally, Company A sells its product for $70. The company records report each adding machine's full absorption costs are $60 which includes fixed costs of $40. If Company A was to accept Company B's offer, what would be the impact on Company A's operating income?
3. Company S makes caps and uniforms. It can sell all of either product it can make. The relevant data for these two products follows:
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Caps
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Uniforms
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Machine time per unit
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1 Hour
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4 Hours
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Selling price per unit
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$20
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$40
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Variable costs per unit
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$4
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$ 8
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Total fixed overhead is $480,000. The company has 200,000 machine hours available for production. The company should select which product to maximize operating profits?
Comcast Inc
Comcast uses 24,000 units of a certain component in production each year. Presently, this component is purchased from an outside supplier at $19 per unit. For some time now there has been idle capacity in the factory that could be utilized to make this component. The costs associated with manufacturing the component internally rather than buying it from the outside supplier are...
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Direct materials
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$6 per unit
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Direct Labor
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$6 per unit
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Variable Overhead
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$4 per unit
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Fixed Overhead (based on production of 8,000 units per month)
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$4 per unit
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Annual salary if hiring a new supervisor to oversee this production
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$24,000
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4. Refer to Comcast Inc. Assuming other things stay the same, at what price per unit from the outside supplier would the company be indifferent (on economic grounds) to buying or making the components?
5. Refer to Comcast Inc. If the company chooses to make the component instead of buying it from an outside supplier, the changes in the company's net income per year would be a
6. NBC has three products that use common facilities. The relevant data concerning these three products follows:
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Product
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A
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B
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C
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Total
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Sales
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$10,000
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$30,000
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$40,000
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$80,000
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Variable costs
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5,000
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20,000
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25,000
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50,000
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Contribution Margin
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5,000
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10,000
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15,000
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30,000
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Fixed cost
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5,000
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15,000
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30,000
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50,000
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Operating loss
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0
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-$ 5,000
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-$15,000
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-$20,000
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Fixed costs are allocated common costs. If product line C is dropped, what will be the impact on operating profits?
Computer Systems
Computer Systems manufactures and sells various computer products and has two decentralized divisions: (1) Production and (2) Marketing. The Marketing Division has always purchased a particular motherboard from Production at $130 per unit. The Production Division is considering raising the price to $150 per unit. The Production Division's costs related to the motherboard production are as follows:
Variable costs per unit: $130
Monthly fixed costs: $20,000
The Marketing Division handles the promotion and distribution of the motherboard purchases from the Production Division and sells each motherboard for $250. Marketing Division incurs monthly fixed costs of $10,000. Marketing Division sells 4,000 units per month. Marketing Division can buy the same motherboard from outside suppliers for $150.
7. Refer to Computer Systems. If the Marketing Division purchases the motherboard from outside suppliers, the facilities the Production Division uses to manufacture the motherboard would remain idle. The Production Division is operating below capacity because of weak global demand for the product.
What should be the motherboard transfer price be between the Production Division and Marketing Division in order for Computer Systems to optimize profits?
8. Refer to Computer Systems. The Production Division is operating at maximum capacity because of strong worldwide demand for the product and the Production Division can sell all it produces to outside customers for $150 per motherboard.
What should be the motherboard transfer price between the Production Division and Marketing Division in order for Computer Systems' to optimize profits?
9. If a division has sales of $5,000,000, operating profit of $500,000, and a division investment of $2,500,000, its return on investment is
Apogee Labs
Apogee Labs has two divisions, A and B. Information for each division is as follows:
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Division
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A
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B
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Operating Profit
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$80,000
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$520,000
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Investment in Division
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$200,000
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$2,400,000
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Weighted Average Cost of Capital
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24%
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24%
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Profit Margin Percentage
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20%
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40%
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10. Refer to Apogee Labs. What is the total sales revenue for Division B?
11. Refer to Apogee Labs. What is the investment turnover for Division A?
12. Refer to Apogee Labs. What is EVA for Division A?
13. Johnson Controls is currently operating at 80 percent capacity. Worried about the company's performance, the general manager reviewed the company's operating performance. (All fixed costs are allocated to the segments)
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Segment
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North
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South
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East
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West
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Sales
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30
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40
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20
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10
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Less: variable costs
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11
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8
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21
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8
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Contribution margin
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19
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32
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(1)
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2
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Less: fixed costs
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9
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12
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5
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3
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Operating profit (loss)
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10
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20
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(6)
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(1)
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A. What is the current operating profit for the company as a whole?
B. If the manager eliminated the two unprofitable segments, what would be the new operating profit for the company as a whole?
C. Given the data provided above, how can management maximize profits?
14. Provide the missing data in the following situations:
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Sigma
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Tau
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Gamma
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Division
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Division
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Division
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Sales Revenue
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$ (A)
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$250,000
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$ (G)
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Division Investment
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$ (B)
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$ (D)
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$800,000
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Operating Profit
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$400,000
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$10,000
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$144,000
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Profit Margin Percentage
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8%
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(E)
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12%
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Investment Turnover
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(C)
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(F)
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1.5
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Return on investment
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16%
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10%
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(H)
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