25. Division A sells ground veal internally to Division B, which in turn, produc

Question

25. Division A sells ground veal internally to Division B, which in turn, produces veal burgers that sell for $10 per pound. Division A incurs costs of $1.25 per pound while Division B incurs additional costs of $5.00 per pound. Which of the following formulas correctly reflects the company's operating income per pound? A. $10.00 ($1.25 $5.00) B. $10.00 ($2.50$5.00) C. $10.00 ($1.25$7.50) D. $10.00 ($0.50 $2.50 $7.00) s0 $3.75 -$2.50 - $1.25 26. Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit, which includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead cost wl be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in net savings annually. To achieve this goal, the minimum annual rent on the facility must be: A. 10,000 B. $ 40,000 C. 70,000 D. $190,000 29. Verizon Manufacturing Company spent $400,000 in 2012 to inspect incoming components. Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2012, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ), Verizon contracted Quality-is-Free Consultants, Inc. (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training and $150,000 for equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2013 for the project. Verizon expects no changes in its operating level in the foreseeable future What is the change in total quality cost projected for 2013? A. $400,000 decrease B. $290,000 decrease C. $550,000 decrease D. $560,000 decrease

Explanation / Answer

Ans)

25) Option A $10.00 - ( $1.25 + $5.00) = 3.75

26) Option (D) 190,000

Total overhead = ($8 x 30,000) = $240,000. The overhead that would continue is $240,000 minus $60,000 = $180,000. Relevant overhead per unit is $180,000/30,000 = $6. If we decide to accept Orlan's offer, the total per unit costs that will be incurred is $33 + $6 = $39. This is $3 higher than our current manufacturing costs. The company would lose $3.00 per unit if they accept Orlan's offer.(2) From part (1), if they accept Orlan's offer, they would be $90,000 worse off ($3 x 30,000). In order to realize $100,000 in savings, they would have to rent the facility for $190,000.

29)

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