1. Claxon Company owns a machine with a cost of $305,000 and accumulated depreciation of $65,000 that can be sold for $262,000, less a 5% sales commission. Alternatively, the machine can be leased by Claxon Company for three years for a total of $272,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Claxon Company on the machine would total $21,600 over the three years. Prepare a differential analysis on January 12 as to whether Claxon Company should lease (Alternative 1) or sell (Alternative 2) the machine. Question: How much is the Differential Effect on Income for Alternative 2?

2. Based on your answer in number 1, should the company lease or sell?

3. Product TS-20 has revenue of $102,000, the variable cost of goods sold of $52,500, variable selling expenses of $21,500, and fixed costs of $35,000, creating a loss from operations of $7,000. Prepare a differential analysis as of September 12 to determine if Product TS-20 should be continued (Alternative 1) or discontinued (Alternative 2), assuming fixed costs are unaffected by the decision. Question: How much is the Differential Effect on Income for Alternative 2?

4. Based on your answer in number 3, should the company continue producing TS-20? Yes or No?

5. A restaurant bakes its own bread for a cost of $165 per unit (100 loaves), including fixed costs of $43 per unit. A proposal is offered to purchase bread from an outside source for $110 per unit, plus $15 per unit for delivery. Prepare a differential analysis dated August 16 to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread, assuming fixed costs are unaffected by the decision. Question: How much is the Differential Effect on Income for Alternative 2?

6. Based on your answer in number 5, should the restaurant Make or Buy?

7. A machine with a book value of $126,000 has an estimated six-year life. A proposal is offered to sell the old machine for $84,000 and replace it with a new machine at a cost of $145,000. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $55,000 to $43,000. Prepare a differential analysis dated February 18 on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2). Question: How much is the Differential Effect on Income for Alternative 2?

8. Based on your answer in number 7, should the company continue using the old machine or replace it? Continue or replace?

9. Product T is produced for $5.90 per pound. Product T can be sold without additional processing for $7.10 per pound, or processed further into Product U at an additional cost of $0.74 per pound. Product U can be sold for $8.00 per pound. Prepare a differential analysis dated August 2 on whether to sell product T (Alternative 1) or process further into Product U (Alternative 2). Question: How much is the Differential Effect on Income for Alternative 2?

10. Based on your answer in number 9, should the company sell Product T or process it further to Product U?

sell Product T

process further to sell Product U

11. Product R is normally sold for $52 per unit. A special price of $42 is offered for the export market. The variable production cost is $30 per unit. An additional export tariff of 30% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. Prepare a differential analysis dated October 23 on whether to reject (Alternative 1) or accept (Alternative 2) the special order. Question: How much is the Differential Effect on Income for Alternative 2?

12. Based on your answer in number 11, should the company accept the special order or not? Accept or reject?

13. Magna Lighting Inc. produces and sells lighting fixtures. An entry light has a total cost of $125 per unit, of which $80 is product cost and $45 is selling and administrative expenses. In addition, the total cost of $125 is made up of $90 variable cost and $35 fixed cost. The desired profit is $55 per unit. Determine the markup percentage on product cost.

14. Based on your answer in number 13, how much is the mark-up?

15. Based on your answer in number 13, what will be the normal selling price for Magna Lightning's product?

16. Product A has a unit contribution margin of $24. Product B has a unit contribution margin of $30. Product A requires four testing hours, while Product B requires six testing hours. Determine the most profitable product, assuming the testing is a bottleneck constraint. Product A or Product B?

Transcribed Image Text:

As an example, Differential Effect on Income (Alternative 2) is the amount highlighted below. Answer to be written: -31000 or -$31000 Differential Analysis Lease Equipment (Alternative 1) or Sell Equipment (Alternative 2) June 22, 2014 Differential Effect Lease Equipment Sell Equipment (Alternative 1) on Income (Alternative 2). (Alternative 2) Revenues.. $160,000 $100,000 -$60,000 Costs..... Income (loss).. -35,000 $125,000 -6,000 $ 94,000 29,000 -$31,000 .... As an example, Differential Effect on Income (Alternative 2) is the amount highlighted below. Answer to be written: -31000 or -$31000 Differential Analysis Lease Equipment (Alternative 1) or Sell Equipment (Alternative 2) June 22, 2014 Differential Effect Lease Equipment Sell Equipment (Alternative 1) on Income (Alternative 2). (Alternative 2) Revenues.. $160,000 $100,000 -$60,000 Costs..... Income (loss).. -35,000 $125,000 -6,000 $ 94,000 29,000 -$31,000 ....

Answer rating: 100% (QA)

1 Sell 8900 Lease 250400 Differential Effect on Income 241500 2The company shoul... View the full answer