4-faces a number of important decisions that require incremental analysis.

Recently, Mike Cichanowski, owner and CEO of Current Designs, received a phone call from the president of a brewing company. He was calling to inquire about the possibility of Current Designs producing floating coolers for a promotion his company was planning. These coolers resemble a kayak but are about one-third the size. They are used to float food and beverages while paddling down the river on a weekend leisure trip. The company would be interested in purchasing 100 coolers for the upcoming summer. It is willing to pay $250 per cooler. The brewing company would pick up the coolers upon completion of the order.

Mike met with Diane Buswell, controller, to identify how much it would cost Current Designs to produce the coolers. After careful analysis, the following costs were identified.

Direct materials $80/unitVariable overhead $20/unitDirect labor $60/unitFixed overhead $1,000

Current Designs would be able to modify an existing mold to produce the coolers. The cost of these modifications would be approximately $2,000.

(b)

Discuss additional factors that Mike and Diane should consider if Current Designs is currently operating at full capacity.

6- Larkin, Inc. uses 1,000 units of the component NJF1 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows:

Direct materials $65Direct labor 48Overhead 96Total $209

Overhead costs include variable material handling costs of $10, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 50% variable costs and 50% fixed costs.

A vendor has offered to supply the NJF1 component at a price of $175 per unit.

(b)

Should Larkin purchase the component from the outside vendor if it can use its facilities to manufacture another product? What information will Larkin need to make an accurate decision?

8- Brislin Company has four operating divisions. During the first quarter of 2020, the company reported aggregate income from operations of $213,000 and the following divisional results.

DivisionIIIIIIIVSales$250,000$200,000$500,000$450,000Cost of goods sold200,000192,000300,000250,000Selling and administrative expenses75,00060,00060,00050,000Income (loss) from operations$ (25,000)$ (52,000)$140,000$150,000

Analysis reveals the following percentages of variable costs in each division.

IIIIIIIVCost of goods sold70%90%80%75%Selling and administrative expenses40605060

Discontinuance of any division would save 50% of the fixed costs and expenses for that division.

Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued.

(d)

Reconcile the total income from operations ($213,000) with the total income from operations without Division II.