8. The Immanuel Company has just obtained a request for a special order of 6,000
ID: 2451909 • Letter: 8
Question
8. The Immanuel Company has just obtained a request for a special order of 6,000 jigs to be shipped at the end of the month at a selling price of $7 each. The company has a production capacity of 90,000 jigs per month with total fixed production costs of $144,000. At present, the company is selling 80,000 jigs per month through regular channels at a selling price of $11 each. For these regular sales, the cost for one jig is:
Variable production cost: $4.60
Fixed production cost: 1.80
Variable selling expense: 1.00
If the special order is accepted, Immanuel will not incur any selling expense; however, it will incur shipping costs of $0.30 per unit.
If Immanuel accepts this special order, what will be the increase or decrease in monthly net operating income. (Worth 2.5 pts.) SHOW ALL WORK FOR CREDIT!
In addition to the special order’s effect on income, what are some of the other longer-term quantitative and qualitative factors that the company’s managers should consider before deciding whether to accept the offer? (Worth 1.5 pts.; must list at least three factors for full points.)
9. The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam.
Sales (6,500 Tams at $130 each) $845,000
Variable cost of sales 390,000
Variable distribution costs 65,000
Fixed advertising expense 275,000
Salary of product line manager 25,000
Fixed manufacturing overhead 145,000
Net loss ($55,000)
Clemson Company is trying to determine whether or not to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturiing costs of the company.
If the company discontinues the Tam product line, net operating income (or loss) will decrease by what amount? (Worth 2.5 pts.) SHOW ALL WORK FOR CREDIT!
What are some considerations the companies managers may want to take into account when making the decision to discontinue a product line, department, or other segment? (Worth 1.5 pts. – must list a minimum of three factors.)
10. Sharp Company produces 8,000 parts each year, which are used in the production of one of its products. The unit product cost of a part is $36, computed as follows:
Variable production costs $16.00
Fixed production costs 20.00
Unit product cost $36.00
The parts can be purchased from an outside supplier for only $28 each. The space in which the parts are now produced would be idle and fixed production costs would be reduced by one-fourth.
If the parts are purchased from the outside supplier, what is the annual impact on the company's operating income? (Worth 3.5 pts.) SHOW ALL WORK FOR CREDIT!
What are some of the other qualitative or quantitative factors the company may want to consider before purchasing the part from an outside supplier? (Worth 1.5 pts.; must list 3 factors for full points)
Explanation / Answer
Solution:
Question No.8:
Immanuel Company Jigs Shipped 6000 Jigs at $7 Per Jig
= 6000 * $7 = 42,000
The Company Production Capacity is 90,000
Per Unit Caluculation:
Per Unit = 1,44,000 + 3,68,000 + 80,000 / 80,000
= 5,92,000 / 80,000
= $ 7.4
Caluculation of Net Operating Income:
Sales ( 80,000 * 11) 8,80,000
Less: Variable Expencess 80,000
Net Profit 8,00,000
If We Add Take Special Order at 0.30 Cost
80,000 * 0.30 = 24,000
Sales (80,000 * 11) 8,80,000
Less: Variable Expencess 80,000
Less: Special Order Cost 24,000
Net Profit Decrease 7,76,000
Question No. 10:
TOtal Units Produced 8,000
Production Cost = $ 36
Net Operating Income:
Net Operating Income =
Revenue = 8,000 * $36
= $ 2,88,000
Costs = 8,000 * 28
= $ 2,24,000
Net Operating Income = $ 2,88,000 - $ 2,24,000
= $ 64,000
Fixed Costs Reduced by 1/4
Total Fixed Costs 1,60,000 * 1/4
= 40,000
Total Fixed Expences = 1,60,000 - 40,000
= 1,20,000
Net Income Caluculation:
Sales Revenue (8,000 * 31) 2,48,000
Less: Supplier Costs 2,24,000
Net Operating Income = 24,000
Per Unit = Total Production Fixed Cost + Vaiable Cost / No.of Units ProducedRelated Questions
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