BMAL530 Assignment: Homework 8 FALL 2014

1.
award:
6 out of
6.00 points

Xinhong
Company is considering replacing one of its manufacturing machines. The
machine has a book value of $37,000 and a remaining useful life of 4 years,
at which time its salvage value will be zero. It has a current market value
of $47,000. Variable manufacturing costs are $33,500 per year for this
machine. Information on two alternative replacement machines follows.

Alternative A

Alternative B

Cost

$

116,000

$

110,000

Variable
manufacturing costs per year

22,500

10,200

2.
award:
6 out of
6.00 points

A
company must decide between scrapping or reworking units that do not pass
inspection. The company has 17,000 defective units that cost $5.70 per unit
to manufacture. The units can be sold as is for $2.50 each, or they can be
reworked for $3.50 each and then sold for the full price of $9.50 each. If
the units are sold as is, the company will be able to build 17,000 units at a
cost of $5.70 each, and sell them at the full price of $9.50 each.

(1)

What is
the incremental income from selling the units as scrap and reworking and
selling the units?

.
award:
6 out of
6.00 points

Farrow
Co. expects to sell 300,000 units of its product in the next period with the
following results.

Sales
(300,000 units)

$

4,500,000

Costs
and expenses

Direct
materials

600,000

Direct
labor

1,200,000

Overhead

300,000

Selling
expenses

450,000

Administrative
expenses

771,000

Total
costs and expenses

3,321,000

Net
income

$

1,179,000

The
company has an opportunity to sell 30,000 additional units at $13 per unit.
The additional sales would not affect its current expected sales. Direct
materials and labor costs per unit would be the same for the additional units
as they are for the regular units. However, the additional volume would
create the following incremental costs: (1) total overhead would increase by
15% and (2) administrative expenses would increase by $129,000.

Calculate
the combined total net income if the company accepts the offer to sell
additional units at the reduced price of $13 per unit.

4.
award:
6 out of
6.00 points

Gilberto
Company currently manufactures one of its crucial parts at a cost of $4.85
per unit. This cost is based on a normal production rate of 60,000 units per
year. Variable costs are $3.10 per unit, fixed costs related to making this
part are $60,000 per year, and allocated fixed costs are $45,000 per year.
Allocated fixed costs are unavoidable whether the company makes or buys the
part. Gilberto is considering buying the part from a supplier for a quoted
price of $3.50 per unit guaranteed for a three-year period.

Calculate
the total incremental cost of making 60,000 units.

Calculate
the total incremental cost of buying 60,000 units.

Should
the company continue to manufacture the part, or should it buy the part from
the outside supplier?

5.
award:
6 out of
6.00 points

Cobe Company has already manufactured 16,000
units of Product A at a cost of $10 per unit. The 16,000 units can be sold
at this stage for $440,000. Alternatively, the units can be further
processed at a $270,000 total additional cost and be converted into 5,400
units of Product B and 12,000 units of Product C. Per unit selling price
for Product B is $105 and for Product C is $58.

1.

Prepare an analysis that shows whether the
16,000 units of Product A should be processed further or not.