Dental Inc., uses 13 units of part RM67 each month in the production of dentistry equipment. The cost The cost of manufacturing one unit of RM67 is the following:
Direct material: $ 5,000
Material handling (20% of direct-material cost 1,000
Direct labor 35,000
Manufacturing overhead (150% of direct labor) 52,500
Total manufacturing cost $93,500
Material handling represents the direct variable costs of the Receiving Department that are applied to direct materials and purchased components on the basis of their cost. This is a separate charge in addition to manufacturing overhead. Dental’s annual manufacturing overhead budget is one-third variable and two-thirds fixed. Perry Supply, one of Dental’s reliable vendors, has offered to supply part number RM67 at a unit price of $59,000.
Required:
1. Assume that Dental does not wish to commit to a rental agreement but could use its idle capacity to manufacture another product that would contribute $173,00 per month. If Dental’s management elects to manufacture RM67 in order to maintain quality control, what is the net amount of Dental’s cost from using the space to manufacture part RM67?
Net cost of using limited capacity to produce part RM67
a. If Dental purchases the RM67 units from Perry, the capacity Dental used to manufacture these parts would be idle. Should Dental decide to purchase the parts from Perry, the unit cost of RM67 would increase (or decrease) by what amount?
Per unit
b. Assume Dental is able to rent out all its idle capacity for $89,000 per month. If Dental decides to purchase the 13 units from Perry Supply, Dental’s monthly cost for RM67 would increase (or decrease) by what amount?
Per month
United Chemical Company, located in Buenos Aires, Argentina, recently received an order for a product it does not normally produce. Since the company has excess production capacity, management is considering accepting the order. Production of the special order would require 8,800 kilograms of theolite. United does not use theolite for its regular product, but the firm has 8,800 kilograms of the chemical on hand from the days when it used theolite regularly. The theolite could be sold to a chemical wholesaler for 14,900 p. The book value of the theolite is 3.20 p per kilogram. United could buy theolite for 3.60 p per kilogram. (p denotes the peso. Argentina’s national monetary unit. Many countries use the peso as their unit of currency. On the day this exercise was written , Argentina’s peso was worth, 1891 U.S. dollars.)
2. The relevant cost of theolite for the purpose of analyzing the special-order decision is an example of:
Top of Form
Historical cost
Opportunity cost
Sunk cost
What is the relevant cost of theolite for the purpose of analyzing the special-order decision?
Relevant cost p
3.Identify the relevance of each of the numbers given in the exercise in making the decision.
(a) Sales value
(b) Book value
(c) Current purchase cost
Bottom of Form
United Chemical Company, located in Buenos Aires, Argentina, recently received an order for a product it does not normally produce. Since the company has excess production capacity, management is considering accepting the order. Production of the special order would require 9,400 kilograms of theolite. United does not use theolite for its regular product, but the firm has 8,100 kilograms of the chemical on hand from the days when it used theolite regularly. The theolite could be sold to a chemical wholesaler for 14,600 p. The book value of the theolite is 10.00 p per kilogram. United could buy theolite for 10.20 p per kilogram. (p denotes the peso. Argentina’s national monetary unit. Many countries use the peso as their unit of currency. On the day this exercise was written , Argentina’s peso was worth, 1891 U.S. dollars.)
United’s special order also requires 1,100 kilograms of genatope, a solid chemical regularly used in the company’s products. The current stock of genatope is 9,400 kilograms at a book value of 10.00 p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 10.60 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 10.20 p when normal restocking takes place. Any order of genatope must be in the amount of 5,300 kilograms.
4. Identify the relevance of each of the fiqures given in the exercise in terms of making the special-order decision.
(a) The book value of inventory
(b) Quantity to be used in the special order
(c) Predicted cost if next order is placed early
(d) Predicted cost if next order is placed on time
5. What is the relevant cost of genatope?
Relevant cost p

Answer rating: 100% (QA)

1 93500131215500 Net cost 1215500 a Decrease by 935005900034500 b Purchase from Perry 5900013767000 Net cost 767000 89000678000 Dentals cost would dec... View the full answer