FINAL EXAM SHOW ALL WORK 1. (20 pts) Sunshine Fruit Co. makes its own shipping b
ID: 2600348 • Letter: F
Question
FINAL EXAM SHOW ALL WORK 1. (20 pts) Sunshine Fruit Co. makes its own shipping boxes. The annual cost to make 80,000 boxes is: Materials Labor Indirect Manufacturing Costs $120,000 20,000 Variable 16,000 60,000 $216,000 Total Fixed Suppose Weyerhouser offers to sell them boxes for $2.10 per box a) Given the above, should Sunshine Fruit make or buy the boxes? b) Suppose that all the above fixed costs are depreciation for equipment which is at the end of its 10-year life and was purchased for $600,000. New replacement equipment will cost 5800.000 and have a 10-year life also. Will this fact make a difference the make or buy decision? 2. (20 pts) A tool company sells a plain (price $50, variable cost $35) and a professional (price $100, variable cost $60) circular saw. It takes one machine-hour to produce a professional and 15 minutes to produce a regular saw. There are 40,000 machine-hours available and demand is more than they can produce. a) Compute contribution margins and contribution margin ratios for each saw. b) If all machine hours are used, compute the total contribution margin for plain sa only and professional saws only. Which saw should be produced? 3. (20 pts) The Edgerton Co. Produces products A, B, and C from a joint process. The joint costs for 2013 were $72,000. All three products can be processed further and the pertinent information follows: Sales Value Sales Value i Item Units A 6,000 $25,000 $42,000 C 2,000 24,000 32,000 Added Cost to ProducedAt Split Off Processed further Process Further $9,000 7,000 10,000 4,000 41,000 45,000 a) To maximize profits, which product(s) should be processed further? b) If C is to be processed further, what should its final price be to break-even? PLEASE TURN OVERExplanation / Answer
QUESTION 1
COST ANALYSIS 80,000 BOXES
$
$
$
DM
120,000
DL
20,000
PRIME COST
140,000
VMOH
16,000
VARIABLE COST
156,000
FMOH
60,000
216,000
VARIABLE COST PER BOX
156000/80000
1.95
$600,000/10 years
$60000 pa
Depreciation on new equipment
$800,000/10 years
$80000 pa
NET EFFECT
+20,000
THUS FIXED COSTS WILL INCREASE BY $20,000
IT WILL NOT STILL MAKE A DIFFERENCE AS IT’S STILL A FIXED COST
2. TOOL CO
$
$
$
REGULAR SAW
PROFF SAW
SP
50
100
VC
35
60
C MARGIN
15
40
MARGIN RATIO
30%
40%
MARGIN PER LIMITING FACTOR ( HOURS)
15/15
40/60
1
.67
PER UNIT CONTRIBUTION
$1 BETTER THAN $.67
ON BASIS OF C/ PER LIMITING FACTOR*
*MARGIN FOR REGULAR SAW = $1 THUS $40,000
*MARGIN FOR PROF SAW = .67 X 40000= $26800
3
EDGERTON
INITIAL PROCESS
SALE VALUE AT
SPLIT OFF
FURTHER PROCESSED
ADDED COSTS
SALE VALUE
a)
$
$
$
$
72000
PRODUCT A
6/12 X 72= 36000
25000
+9000= 45000
42000
Will be a loss, anyway
PRODUCT B
4/12 X 72 =24000
41000
+7000= 31,000
45000
Will get lesser profit
PRODUCT C
2/12 X 72=
12000
32000
+10000= 22,000
32000
Will get lesser profit
DO NOT FURTHER PROCESS ANY PRODUCT
SP = $32,000
COST = $22,000
THUS TO BREAK EVEN SELL AT $22,000
QUESTION 1
COST ANALYSIS 80,000 BOXES
$
$
$
DM
120,000
DL
20,000
PRIME COST
140,000
VMOH
16,000
VARIABLE COST
156,000
FMOH
60,000
216,000
VARIABLE COST PER BOX
156000/80000
1.95
- It should continue to make as the “Variable cost” of box is $1.95 AND IS LESSER THAN BUYING COST ( $2.100. When fixed costs are fixed anyway and will continue to happen we cannot take it into our decision
- Depreciation on old equipment
$600,000/10 years
$60000 pa
Depreciation on new equipment
$800,000/10 years
$80000 pa
NET EFFECT
+20,000
THUS FIXED COSTS WILL INCREASE BY $20,000
IT WILL NOT STILL MAKE A DIFFERENCE AS IT’S STILL A FIXED COST
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