3. Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce.

Question

3. Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 12,000 cases of sauce each year but is currently only manufacturing and selling 10,800. The following costs relate to annual operations at 10,800 cases:

Gwinnett normally sells its sauce for $35 per case. A local school district is interested in purchasing Gwinnett's excess capacity of 1,200 cases of sauce but only if they can get the sauce for $14 per case. This special order would not affect regular sales or total fixed costs or variable costs per unit. If this special order is accepted, Gwinnett's profits for the year will:

increase by $600

decrease by $1,200

decrease by $10,800

decrease by $7,200

4.Nesmith Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below:

What is the differential cost of Alternative B over Alternative A, including all of the relevant costs?

$42,000

$165,400

$123,400

$149,800

5. Tawstir Corporation has 500 obsolete personal computers that are carried in inventory at a total cost of $720,000. If these computers are upgraded at a total cost of $210,000, they can be sold for a total of $270,000. As an alternative, the computers can be sold in their present condition for $50,000.

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

$220,000 advantage

$60,000 advantage

$10,000 advantage

$770,000 disadvantage

7. Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 59,000 units per month is as follows:

An order has been received from an overseas customer for 3,900 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $3.10 less per unit on this order than on normal sales.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $95.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

$(97,000)

$26,130

$108,420

$(91,260)

3. Gwinnett Barbecue Sauce Corporation manufactures a specialty barbecue sauce. Gwinnett has the capacity to manufacture and sell 12,000 cases of sauce each year but is currently only manufacturing and selling 10,800. The following costs relate to annual operations at 10,800 cases:

Explanation / Answer

       3 Gwinnett Details for 10800 units for 1200 cases Sales revenue                      35           378,000                   14            16,800 Less Variable manufacturing cost                12.00           129,600             12.00            14,400 Less Variable selling & Admin cost                  3.00              32,400               3.00              3,600 Total Variable cost                15.00     162,000.00             15.00            18,000 Contribution Margin                20.00     216,000.00             (1.00)            (1,200) Fixed costs Fixed Manufacturing Costs              49,000                     -   Fixed Sellling and Admin Expense              31,000                     -   Total Fixed cost              80,000                     -   Net Operating Income           136,000            (1,200) So the profit decrease by $1200        4 Nesmith Corporation Detaills Alternative A Alternative B Differential Cost of B over A   Materials costs 43000 57000          14,000   Processing costs 49000 49000                    -     Equipment rental 11600 28800          17,200   Occupancy costs 19800 30600          10,800 Total          42,000 So total differentiall cost of B over   A is $42000        5 Options Sales as is Sale after upgrade Cost Associated                       -             210,000 Sales value              50,000           270,000 Income over cost              50,000              60,000 Net Advantage of upgrading =              10,000        6 Gwinnett Details for 59000 units for 3900 cases Sales revenue              124.10        7,321,900             95.40         372,060 Less Direct Material                52.10        3,073,900             52.10         203,190 Less Direct Labor                10.00           590,000             10.00            39,000 Less Variable manufacturing OH                  3.00           177,000               3.00            11,700 Less Variable selling & Admin cost                  5.60           330,400               2.50              9,750 Total Variable cost                70.70        4,171,300             67.60         263,640 Contribution Margin                53.40        3,150,600             27.80         108,420 Fixed costs Fixed Manufacturing Costs        1,244,900                     -   Fixed Sellling and Admin Expense        1,593,000                     -   Total Fixed cost        2,837,900                     -   Net Operating Income           312,700         108,420 So the profit will increase by $108420

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